CFA Practice Question

There are 294 practice questions for this study session.

CFA Practice Question

An individual security, Q, has covariance with the market portfolio, M, of 0.0750 (decimal). The expected return on the market portfolio is 15% and its standard deviation is 24%. Security Q has a standard deviation of 40%. The beta for Q is ______.

A. 1.30
B. 0.77
C. 0.31
Correct Answer: A

BetaQ = COVQ,M/VARM = 0.0750/0.242 = 1.30

User Contributed Comments 6

User Comment
group Good question
DonAnd Nice question
GJCFA Beta of market portfolio is 1. If Q has SD more than that of market portfolio, then it's beta has to be more than 1. Only option available is A. No calculation needed!
moneyguy I'm sure we'll be seeing some of these on the exam.
johntan1979 GJCFA, your assumption is wrong. In this case, the correlation coefficient, p is

1.30 = p x 0.40 / 0.24
p = 0.78

If p is 0.462, then beta is 0.77 (less than one)

Don't simply assume. Know the formula and calculate it.
khalifa92 or: (0.075/(0.24*0.4))*(0.4/0.24)=1.3021
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