Beta is a measure...
Summary
Beta is a measure of the systematic risk for a security or a portfolio
relative to a market portfolio. Beta does not capture unsystematic,
diversifiable risk. The beta coefficient measures the covariability of
a security's or portfolio's volatility with the volatility of the market
as a whole.
Please check your understanding of "beta" in the Practice Exercise which follows. You will
then be ready to continue to the final section of this unit.
PRACTICE EXERCISE 6.4
Directions: Mark the correct answer to each question. Compare your solutions to the
correct answers in the Answer Key that follow on the next page.
6. Beta is a measure of:
_____ a) the total risk for a security or a portfolio.
_____ b) the systematic risk for a security or a portfolio relative to a market
portfolio.
_____ c) expected or normal returns for a security or a portfolio.
_____ d) unique or asset-specific risks for a security or a portfolio.
Use the following portfolio information for the next question
| Security | Amount Invested | Weight Return | Expected Beta | Coefficient |
| Stock A | $5,000 | 0.25 | 9% | 0.80 |
| Stock B | $5,000 | 0.25 | 10% | 1.00 |
| Stock C | $6,000 | 0.30 | 11% | 1.20 |
| Stock D | $4,000 | 0.20 | 12% | 1.40 |
7. What is the portfolio beta?
_____ a) 0.90
_____ b) 0.95
_____ c) 1.09
_____ d) 1.10