Question

Beta is a measure of a stock’s:

	1.	risk relative to the overall market.
	2.	dividend growth rate.
	3.	rate of return.
	4.	dividend as a percentage of net income.
	5.	return relative to the overall market.

Answer 1

Answer is : 1. risk relative to the overall market.

Explanation:

Beta is one of the most popular indicators of risk in stock market. . Analysts use this measure often when they need to determine a stock's risk profile.

The market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. If a stock moves less than the market, the stock's beta is less than 1.0. High-beta stocks are supposed to be riskier but provide a potential for higher returns; low-beta stocks pose less risk but also lower returns.

Beta is a key component for the capital asset pricing model (CAPM), which is used to calculate the cost of equity. All things being equal, the higher a company's beta is, the higher its cost of the capital.

Beta is calculated using regression analysis. Beta represents the tendency of a security's returns to respond to swings in the market.