Question 3Covariance of stock and index returns is 0.003, variance of index returns is 0.004. Calculate the beta1 point0.751.312
Question
Question 3Covariance of stock and index returns is 0.003, variance of index returns is 0.004. Calculate the beta1 point0.751.312
Solution
The beta of a stock is calculated by dividing the covariance of the stock and index returns by the variance of the index returns.
Given: Covariance of stock and index returns = 0.003 Variance of index returns = 0.004
Beta = Covariance / Variance
So, Beta = 0.003 / 0.004 = 0.75
Therefore, the beta of the stock is 0.75.
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