Question

1. If the Beta of a stock or portfolio is 0.8 and the overall market has a 1% loss, then the stock or portfolio would more than likely:
   1. Decline by 0.8%.
   2. Increase by 0.8%.
   3. Decline by 8.0%.
   4. Increase by 8.0%.

Answer 1

If the beta is 0.8, beta indicates how much a stock or portfolio will move in relation to the market. So, if the market decreases  by 1% , the stock will decrease by 0.8%. Since, the beta is positive it will move in the same direction as the market moves. Since, it is less than 1, it will decrease less than the market.

So, the correct option is option A.