Question

The beta of a security is calculated as: (_____ of a security’s return with the return on the market portfolio / _______).
A. Variance; Covariance of the security returnB. Covariance; Standard deviation of the market returnC. Covariance; Variance of the market returnD. Variance; Covariance of the market returnE. Covariance; Variance of the security return

Answer 1

Answer:

Beta of a security is the covariance of the security return with the return on the market portfolio divided by variance of the market return.

The correct answer is C

Explanation:

Beta of a security is calculated as covariance (Ri,Rm) divided by Variance of the market return. Beta is used for measuring the systematic risk of a security.