Question

Stock A has a beta of 1.2, and stock B has a beta of 1. The returns of stock A are ______ sensitive to changes in the market than are the returns of stock B. A. 20% more B. slightly more C. 20% less D. slightly less

Answer 1

Answer:

Option A, 20% more, is the right answer.

Explanation:

Given the beta value of stock A =  1.2

The beta value of stock B = 1

The beta value of stock A is greater than the stock B. Here, we can see that the beta of stock A  is large by 20% as compared to the beta of stock B.

It can be calculated as = (Beta of stock A – Beta of stock B) / Beta of stock B

= (1.2 – 1) / 1

= 0.2 or  20%

Therefore, the return will also be more than 20%.

Thus, option A. 20% more is correct.