CFA Practice Question

There are 294 practice questions for this study session.

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
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