- CFA Exams
- CFA Level I Exam
- Topic 9. Portfolio Management
- Learning Module 2. Portfolio Risk and Return: Part II
- Subject 4. Calculation and Interpretation of Beta
CFA Practice Question
Assume the risk-free rate is 4%. The expected return on the market portfolio is 15% and its standard deviation is 20%. A company has a standard deviation of 40% and a correlation of 0.8 with the market. What is the company's beta?
Correct Answer: β = ρ σi / σM = 0.8 x 0.4 / 0.2 = 1.6
User Contributed Comments 2
| User | Comment |
|---|---|
| papajohn | good one |
| HolzGe1 | 1) Cov(i,M) = rho * sigma_i * sigma_M = 0.8 * 20% * 40% = 0.064 2) Beta = Cov(i,M) / sigma_M² = 0.064 / 0.2² = 1.6 |