Question

Sysco Corporation has a beta of 0.71. If the returns on the market increase by 1%, what should you expect from Sysco Corporation?

It will go up 1%

It will go up .71%

It will go down 1%

It will go down .71%

Answer 1

Beta is a measure of non-diversifiable risk (Systematic Risk). It measures the sensitivity of the stock with reference to market index. Beta of 1.50 means the stock is 50% riskier than the market. Beta of .71 indicate that the stock is 29%(100-71) less risky than the index. If the stock market changes by 1%,a stock of beta .71 should change by 1*.71 = .71%. Since the beta is positive direction of change will be same. That is if the market goes up, then stock will also goes up.

Hence the Sysco corporation will go up by .71%