You know that the standard deviation of excess return on stock A is 1

Finance Jan 24, 2021

You know that the standard deviation of excess return on stock A is 1.7418, the variance and the standard deviation for the excess market return are 1.4110 and 1.1880, respectively. The correlation coefficient between excess return on stock A and excess market return is 0.5273. Show that ?? =0.7733. (Round your results to 4 decimal number)

Expert Solution

Correlation(A,Market) = Covariance(A,Market) / (Standard Deviation of A x Standard deviation of Market)
Covariance(A,Market) = 0.5273 x 1.7418 x 1.188 = 1.0911

Beta = Covariance(A,Market) / Variance of Market = 1.0911 / 1.411 = 0.7733

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