9. The beta coefficient

A stocks contribution to the market risk of a well-diversified portfolio is called ________ risk. According to the Capital Asset Pricing Model (CAPM), this risk can be measured by a metric called the beta coefficient, which calculates the degree to which a stock moves with the movements in the market.

Based on your understanding of the beta coefficient, indicate whether each statement in the following table is true or false:

Statement	True	False
Over time, a stock with a beta of 1.0 produces a return that goes up and down with a 1:1 relationship with the return on the market.
A stock that is more volatile than the market will have a beta of less than 1.0.
Beta measures the volatility in stock movements relative to the market.

There are different ways of calculating the beta coefficient for a stock. Using the information given in the following table, calculate the beta coefficient of Stock i:

Data
Stock is standard deviation	35.00%
Markets standard deviation	32.00%
Correlation between Stock i and the market	0.65
Beta coefficient of Stock i:	???

To calculate the beta of another company, using regression analysis, you get the value of R as 0.43. Based on your calculation, which of the following interpretations is true?

A. 43% of the variance in the companys returns can be explained by the market returns. B. 57% of the variance in the companys returns can be explained by the market returns.