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Beta may be calculated by first dividing the security's standard deviation of returns by way of the benchmark's preferred deviation of returns. The resulting fee is elevated via the correlation of the security's returns and the benchmark's returns.
small r = R_f + \ss(R_m - R_f)
Where,
r = Return on the stock
Rf = Risk-free rate
Rm = Market risk rate
small ss = Beta coefficient
Note: All percentages are in decimal format
Therefore, rearranging the formula, we get:
small \ss = \frac{r -R_f}{R_m - R_f}
small = \frac{0.10 -0.03}{0.09 - 0.03}
small = \frac{ 0.07 }{ 0.06 }
small = 1.1667
OR
small = 1.17 (rounding to 2 decimal points)
Therefore, the beta coefficient is 1.17.
If the marketplace or index charge of return is 8% and the chance-free rate is once more than 2%, the difference might be 6%. Divide the first distinction above by using the second distinction above. This fraction is the beta discern, commonly expressed as a decimal price. Its miles are calculated by dividing the distinction between customer rate Indexes(CPI) by the previous CPI and multiplying it by means of a hundred.
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