Based on the following information make an estimate of the s

Based on the following information, make an estimate of the stock\'s beta. Month l Sock +0.59 Market +10 o Month 2 Stock-o 9%, Marte-1 k Mon 3 oct 9?Mark t Beta is greater than 1.0 Beta is less than 1.0 Beta equals 1.0. There is no consistent pattern of returns

Solution

Answer - Beta is less than 1.0

Beta is an indicator of systematic risk in CAPM equation. It basically identifies how volatile is stock related to market.

When Beta is equal to 1, stock moves in tandem with that of the market. For example, if market would have moved 10%, stock would also have moved 10%.

When Beta is less than 1, movement in stock is less than that of the market. For example, if market would have moved 10%, stock would have moved less than 10% (which is the case in question).

When Beta is more than 1, movement in stock is more than that of the market. For example, if market would have moved 10%, stock would have moved more than 10%.