ABC stock has an average annual return of 18.2%. The standard deviation of ABC's returns is 26.3%. The market has an average annual return of 12.2%. The standard deviation of the market's returns is 12.8%. The correlation between ABC stock and the market is 0.3. What is ABC's beta?
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
ABC stock has an average annual return of 18.2%. The standard deviation of ABC's returns is 26.3%. The market has an average annual return of 12.2%. The standard deviation of the market's returns is 12.8%. The correlation between ABC stock and the market is 0.3. What is ABC's beta?
Step by step
Solved in 3 steps
