Question

Over a period of three days, a company stock increased by 6%, decreased by 3%, then increased by 9%. During that same period, the Dow Jones increased by 2%, decreased by 1%, and then incressed by 3%. What is the company's beta?

Select One:

a. -3

b. 3

c. 0.33

d. -0.33

Answer 1

Beta shows how much stock will change given change in market. Suppose beta = 1 , then if market moves by 1 % , stock will also move by 1%

In our example

When Dow Jones increased by 2% , Stock increased by 6% , hence beta = 6%/2% = 3

Similarly when  Dow Jones decreased by 1% , stock decreased by 3% . hence beta = -3%/-1% = 3

Similarly Dow Jones increased by 9% , Stock increased by 3% , hence beta = 9%/3% = 3

Thus Beta of the company is 3

Thus Ans) b. 3