- CFA Exams
- CFA Level I Exam
- Study Session 18. Portfolio Management (1)
- Reading 53. Portfolio Risk and Return: Part II
- Subject 2. Pricing of Risk and Computation of Expected Return

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**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

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**User Contributed Comments**
9

User |
Comment |
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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 |