Calculating Beta: Information is provided below for three companies. The standard deviation of the market

return is 0.055 and the expected market risk premium [(E(Rm) - rF] equals 0.065. For each company, calculate

the firm beta, and the relative risk of the firms security return to the market return based upon their relative

standard deviations. Are beta and the relative standard deviations both measures of the firms risk?

Firm 1. Firm 2 Firm 3

Standard deviation of firms return . . . . . . . . . . . . . . . . . . . . . . 0.108 0.066 0.101

Covariance of firms return and market return . . . . . . . . . . . . . 0.0027 0.0032 0.0042