rRF=5%
rM=10%
rA=12%
I don't know how to figure out the beta
Thank you for your help
To calculate beta, you need to know the returns of the stock (rRF), the market (rM), and the standard deviation of the stock returns (rA).
The formula for calculating beta is as follows:
Beta (β) = (rA - rRF) / (rM - rRF)
Given that rRF = 5%, rM = 10%, and rA = 12%, we can substitute these values into the formula and calculate beta.
Beta (β) = (12% - 5%) / (10% - 5%)
= 7% / 5%
= 1.4
Therefore, the beta value of the stock is 1.4.
It's important to note that beta measures the systematic risk of a stock in relation to the overall market. A beta of 1 means the stock's price tends to move in line with the market. A beta greater than 1 indicates the stock is more volatile than the market, and a beta less than 1 suggests the stock is less volatile than the market.