Homework Answers
Solution:
The formula for calculation of beta of a stock is
βS = ( CovSM / ( σM )2 )
where
βS = Beta of the Stock ;
σM = Standard Deviation of market returns ;
CovSM = Covariance between the returns of the stock and the returns of the market
As per the Information given in the question we have:
σM = Standard Deviation of market returns = 0.030 ;
Cov SM = Covariance between the returns of the stock and the returns of the market = 0.00064
Applying the above values in the formula we have
= 0.00064 / ( 0.030 )2
= 0.00064 / 0.0009
= 0.711111
= 0.7111 ( when rounded off to four decimal places )
Thus Beta of the stock = 0.7111
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