Question

Portfolio B has a standard deviation of 12% and a correlation with the market of 0.85. If the standard deviation of the market is 15%, what is the beta for B? a. 0.54 b. 0.68. c. 0.80. d. Not enough information to determine. Which of the following statements is not correct? a. Correlation ranges from-1 to +1. b. Coefficient of determination ranges from 0 to +1. c. Covariance equals: Standard deviation for A times standard deviation for B divided by the correlation between A and B. d. All of the above are correct. Beta A portfolio has three stocks as follows: Portfolio Stock 1 Stock 2 Stock 3 Percentage 50% 20% 30% 0.6 What is the weighted beta of the portfolio? a. 1.32. b. 1.60. c. 1.40. d. 1.00.

Answer 1

5. The beta can be calculated as :

Beta = correlaton of portfolio with market * standard deviation of portfolio / standard deviation of market

= 0.85 * 0.12/0.15

= 0.68

So, the correct option is option B.

6.The option C is incorrect,rest all options are correct .

Covariance = correlation between A and B * Standard deviation of A * Standard deviation of B

So, the correct option is option C.

7. The weighted Beta is :

weight of stock A *beta + weight of stock B * beta + wieght of stock C * Beta

= 0.5* 2 + 0.2*0.7 + 0.3*0.6

= 1 + 0.14 + 0.18

= 1.32

So, the correct option is option A.