Question

Which of the following statements about the beta coefficient is
**false**?

A | A stock’s beta coefficient measures its volatility relative to the market portfolio. |

B | A stock’s beta coefficient can be estimated by plotting the stock’s returns versus the market portfolio’s returns. |

C | A stock’s reported beta coefficient is based on forecasted future volatility. |

D | A stock with a beta coefficient greater than 1.0 is said to be riskier than the market portfolio. |

E | Using the capital asset pricing model, a stock with a beta coefficient less than 1.0 would have a required rate of return that is lower than the required rate of return on the market portfolio. |

Answer #1

Beta represents Sytematic risk

It represents stocks systematic risk with respect to Market risk.

Beta =1 means Stock risk equals to Market risk

Beta >1 means Stock risk > Market risk

Beta <1 means Stock risk < Market risk

CAPM Return = Rf + Beta ( Rm - Rf)

If Beta < 1, Stock Req Ret < Rm

It can be computed by plotting STock Ret Vs Market Return.

It is calculated based on past data not based on estimated future data.

Thus Option c is false statement

Conceptual questions on beta
A stock’s contribution to the market risk of a well-diversified
portfolio is called risk. According to the Capital
Asset Pricing Model (CAPM), this risk can be measured by a metric
called the beta coefficient, which calculates the degree to which a
stock moves with the movements in the market.
Based on your understanding of the beta coefficient, indicate
whether each statement in the following table is true or false:
Statement
True
False
A stock that is...

Which of the following statements is CORRECT?
Select one: a. The beta of a portfolio of stocks is always
smaller than the betas of any of the individual stocks.
b. The beta of a portfolio of stocks is always larger than the
betas of any of the individual stocks.
c. It is theoretically possible for a stock to have a beta of
1.0. If a stock did have a beta of 1.0, then, at least in theory,
its required rate...

Stock X has a 10% expected return, a beta coefficient of 0.9,
and a 35% standard deviation of expected returns. Stock Y has a
12.5% expected return, a beta coefficient of 1.2, and a 25%
standard deviation. The risk-free rate is 6%, and the market risk
premium is 5%.
a. Calculate each stock’s coefficient of variation.
b. Which stock is riskier for a diversified investor?
c. Calculate each stock’s required rate of return.
d. On the basis of the two...

Stock X has a 10% expected return, a beta coefficient of 0.9,
and a 35% standard deviation of expected returns. Stock Y has a
12.5% expected return, a beta coefficient of 1.2, and a 25%
standard deviation. The risk-free rate is 6%, and the market risk
premium is 5%.
a. Calculate each stock’s coefficient of variation.
b. Which stock is riskier for a diversified investor?
c. Calculate each stock’s required rate of return.
d. On the basis of the two...

Stock X has a 10.0% expected return, a beta coefficient of 0.9,
and a 40% standard deviation of expected returns. Stock Y has a
13.0% expected return, a beta coefficient of 1.3, and a 20%
standard deviation. The risk-free rate is 6%, and the market risk
premium is 5%.
Calculate each stock's coefficient of variation. Do not round
intermediate calculations. Round your answers to two decimal
places.
CVx =
CVy =
Which stock is riskier for a diversified investor?
For...

Stock X has a 9.0% expected return, a beta coefficient of 0.7,
and a 35% standard deviation of expected returns. Stock Y has a
13.0% expected return, a beta coefficient of 1.3, and a 25%
standard deviation. The risk-free rate is 6%, and the market risk
premium is 5%.
Calculate each stock's coefficient of variation. Do not round
intermediate calculations. Round your answers to two decimal
places.
CVx =
CVy =
Which stock is riskier for a diversified investor?
For...

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and a 35% standard deviation of expected returns. Stock Y has a
12.0% expected return, a beta coefficient of 1.1, and a 30.0%
standard deviation. The risk-free rate is 6%, and the market risk
premium is 5%.
Calculate each stock's coefficient of variation. Round your
answers to two decimal places. Do not round intermediate
calculations.
CVx =
CVy =
Which stock is riskier for a diversified investor?
For...

Stock X has a 10.5% expected return, a beta coefficient of 1.0,
and a 35% standard deviation of expected returns. Stock Y has a
12.5% expected return, a beta coefficient of 1.2, and a 20.0%
standard deviation. The risk-free rate is 6%, and the market risk
premium is 5%. Calculate each stock's coefficient of variation.
Round your answers to two decimal places. Do not round intermediate
calculations. CVx = CVy = Which stock is riskier for a diversified
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Stock X has a 10.5% expected return, a beta coefficient of 1.0,
and a 30% standard deviation of expected returns. Stock Y has a
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premium is 5%.
Calculate each stock's coefficient of variation. Round your
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CVx =
CVy =
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For...

Assume that CAPM holds. Which of the following statements is
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b)Two stocks with the same stand-alone risk must have the same
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c)The slope of the security market line is given by the market
risk premium
d)If the beta of a Stock doubles, then its required rate of
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e)If the risk-free rate decreases, then the market risk premium
must also decrease

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