Question

Based on the following information, make an estimate of the stock's beta: Month 1 = Stock +1.1%, Market +1.5%; Month 2 = Stock +1.4%, Market +2.4%; Month 3 = Stock -2.1%, Market -2.9%.
A. Beta is greater than 1.0.
B. Beta is less than 1.0.
C. Beta equals 1.0.
D. There is no consistent pattern of returns.

Answer 1

we can see that in month 1

Stock +1.1%, Market +1.5%

this means when market return increases by 1.5% , stock return increases by 1.1%

similarly in month 2 , when market return increases by 2.4% , stock return increases by 1.4%

and in month 3 ,  when market return decreases by 2.9% , stock return decreases by 2.1%

this means that stock is not as volatile as the market , which means beta cannot be greater than 1 or equal to 1

hence beta is less than 1

correct option is B) beta is less than 1