Astock’s contribution to the market risk of a well-diversified portfolio is called risk. it can be measured by a metric called the beta coefficient, which calculates the degree to which a stock moves with the movements in the market. based on your understanding of the beta coefficient, indicate whether each statement in the following table is true or false: statement true false beta coefficients are generally calculated using historical data. higher-beta stocks are expected to have higher required returns. stock a’s beta is 1.0; this means that the stock has a negative correlation with the market.

The correct answers are:

1) True

2) True

3) False

Explanation:

The Beta Coefficient measures the volatility of a stock compared to the overall market movements. Using the stock historical price movement, Beta is graphically portrait on a slope where "0" means that the stock does not follow the overall market price movements, "-1" implies negative correlation which is the stock not moving in the same market direction, and "1" when the stock is highly correlated with the market price movement thus higher returns are expected.

1)  Beta coefficients are generally calculated using historical data. True.

2) Higher-beta stocks are expected to have higher required returns. True.

3) Stock A’s beta is 1.0; this means that the stock has a negative correlation with the market. False.

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