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      Question

      If the beta of the market index is 1 and the standard

      deviation of the market index increases from 12% to 18%, what is the new beta of the market index?
      A 0.8 Correct Answer Incorrect Answer
      B 1 Correct Answer Incorrect Answer
      C 1.2 Correct Answer Incorrect Answer
      D 1.5 Correct Answer Incorrect Answer
      E 1.6 Correct Answer Incorrect Answer

      Solution

      The beta of the market is 1 irrespective of the market return. The stock returns are calculated with reference to the market return and the stock beta is the measure of the systematic risk of the market for the stock. 

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