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Topic: Business
Number of pages / Number of words: 4 / 1023
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Put another way, this would mean that the beta of a stock indicates the sensitivity of a stock to changes in the returns from the stock market. If the stock market as a class (measured by the Index) changes by 5 per cent, a stock with a beta of 1.2 should change by 5 x 1.2 = 6 per cent

b) Expected risk premium of any stock is beta times the market risk premium: An investor gets extra reward for taking risk...


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This is called risk premium. If the stock market as a class (measured by the Index) gives a risk premium of, say, 10 per cent and the beta of a stock is 1.2 the risk premium from this stock ought to be 1.2 times, that is, 12 percent.

The beta value of a stock can be any number. If the beta value is greater than one, we call it a high beta stock...


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