Question

Beta is Question 10 options: a) A measure of the volatility of returns on an individual stock relative to the market b) Relates the risk-return trade-offs of individual assets to the market returns c) The computed cost of capital determined by multiplying the cost of each item in the optimal capital structure by its weighted presentation in the overall capital structure and summing up the results d) The cost of the last dollar of funds raised

Answer 1

Answer: a) A measure of the volatility of returns on an individual stock relative to the market

Explanation:

Beta is indeed a measure of the volatility of returns on an individual stock relative to the return on the market as a whole.

It is used in the Capital Asset Pricing Model which enables for the calculation of the stock's expected return.

Market Beta is always 1. Therefore betas measure shows how much more or less volatile than the market return, the stock return is. For instance, a beta of 2 means that the stock's returns are twice as volatile as the markets and a beta of 0.5 means the returns are only half as volatile as the market.