Asked by Kasongo Alain on Jun 24, 2024
Verified
Betas are determined:
A) from the slope of the SML.
B) by regressing the return on the market against the return on stock X and taking the slope of the regression line.
C) by estimating the future reaction of the stock to market changes.
D) by examining portfolio returns.
Security Market Line
A line that represents the relationship between risk and expected return in capital market theory, often used in the capital asset pricing model.
Beta
Beta is a measure of a stock's volatility in relation to the overall market; a beta greater than 1 indicates that the stock is more volatile than the market, while a beta less than 1 means it is less volatile.
Regression Line
A straight line that best fits the data points in a scatter plot, used in statistics to model the relationship between two variables.
- Acquire knowledge on the notion of beta and its significance in evaluating market risk.
Verified Answer
CS
Chanon SmitthakornJun 30, 2024
Final Answer :
B
Explanation :
Betas are determined by regressing the return on the market against the return on stock X and taking the slope of the regression line. This measures the sensitivity of the stock's returns to market movements.
Learning Objectives
- Acquire knowledge on the notion of beta and its significance in evaluating market risk.