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