- 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
The beta for stock X can be estimated using regression techniques. Data required for this analysis include ______.
II. the risk-free rate (the rate of return on T-bills)
III. historical rates of return for other assets contained in M
I. historical rates of return for X and M
II. the risk-free rate (the rate of return on T-bills)
III. historical rates of return for other assets contained in M
Correct Answer: I
User Contributed Comments 9
| User | Comment |
|---|---|
| chenyx | R=Rf+(Rm-Rf)*beta just as y=a+(x-a)*b If know x,y,we can regression b |
| Khadria | To calculate Beta, we don't need Rf. So II is not correct. Rf is required to calculare E(R) of a stock but not for Beta. |
| lawrence | yes you do need Rf since you would regress (Stock return - Rf) vs (market return - Rf). |
| DannyZhou | Statistically, regression (stock return -Rf) vs (market return -Rf) gives the exactly same coefficient (different intercept) from regressing stock return vs. market return. Thus, II is wrong because we only need beta (the coefficient in the regression). |
| JDM74 | Good trick question. Have to read these word for word. |
| DariSH | The slope of SML is market risk premium, so we need only E(M) and E(X) to define beta. |
| johntan1979 | Don't forget the equation beta = covariance i,M / covariance M,M = rho x sigma i/sigma M Risk-free rate is no required to compute beta |
| Shaan23 | You guys are all not following. It's not in the AN notes. For Beta estimation using regression the market model is Ri = alpha + BRm + error component Ri and Rm are historical rates in the equation. Not a trick question or anything. Just that formula |
| pigletin | you can calculate beta using slope function in Excel?only historical returns needed |