How an investor can use the value of beta for determination of-02192
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vu mkt501 Marketing Management.
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vu mkt501 Mid Term Solved Past Paper No. 1.
Beta is another name of market risk. The risk for a stock is related to its beta coefficient. Beta reflects the relative systematic risk for a stock, or the risk that cannot be diversified away.
The higher the beta coefficient, the higher the risk for an individual stock, and the higher the required rate of return. Beta measures the volatility of the stocks returns- its fluctuations in relation to the market. A stock with a beta lower than 1.0 has a required rate of return below kM, because its risk (beta) is less than that of the market. On the other hand, a stock with a beta greater than 1.0 has a required rate of return greater than that of the market.
