Question

How to calculate CAPM's beta (something with systematic risk)

Properties of beta

Explain in details, please

Answer 1

1.In Capital Asset pricing model, beta is a measure of the systematic risk to the overall portfolio and it would be calculated using the formula of Capital Asset pricing model.

Beta=[( Expected rate of return- risk free rate)/market risk premium]

it shall be kept in mind that this formula is derived out of the Capital Asset pricing model equation.

Expected rate of return=risk free rate+ [beta x market risk premium]

Properties of Beta are as follows-

A. Beta is the measure of the volatility of the stocks and it is often categorised by calculation of volatility.

B. According to the Capital Asset pricing model, beta is also known as a measure of the systematic risk.

C. Beta of a stock will be reflecting the fluctuations of the stock in relation to the overall fluctuations in the market.