BETA co-efficient

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Sunshine (Querist)
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28 April 2011 1.I am wondering what do u exactly mean when the beta of a company is 1 ??
2.Can the beta of a security be 0??how does that happen?
3.what is the beta for risk free security??

Please explain in detail coz i wanna get the concept....Thanx in advance..

CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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28 April 2011 If beta is one : It means the stock prices of a particular Company's shares moves in the same direction where the stock market goes.

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Suppose today index is up by 2% then the share prices of the company would also go up by 2%.

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If the beta is .7 then it means the prices of the shares will move up (on either side) 70% of the relative market movement.

It means if the market moves to 2% upside; then the prices will move up by 1.4% of the shares of the said company (the beta being .7).
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Hence less the beta; the market price of a company's share is not volatile to the market movement.

It means the market movement is not so affecting the prices of the share of the company.

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The beta of a security may be O when there is no change in the share prices of a particular company - whether the market goes up or goes down.

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This may happen when very few trading is there in the stock market of that particular shares.

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Your Home Work :

Now answer the point no. 3 at your own.

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Sunshine

Sunshine (Querist)
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28 April 2011 sir please explain what would be the effect on return from the securities and the related risk if the beta is 0,1 and above 1..

CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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28 April 2011 Firstly, analyze my answer regarding first two points.

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Then you will find the answer yourself.

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Still if you don't find the answer; I will reply after one day.

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If you find the answer; then write about it.

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Sunshine

Sunshine (Querist)
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28 April 2011 yes sir i think i got it..i will write tomorrow..u please check and temme whether or not i am correct..

Thank u so much..tame shu saras shikshak cho..!!

Sunshine

Sunshine (Querist)
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29 April 2011 so we can say,

if the beta is 1..means the security of the company bears the same risk as the market does coz its share prices move as per the market index...

If the beta is 0, the market movements have nothing to do with the company's securities' prices...so there is no risk involved...

This is the case with goverment securities which we assume to be risk free(i assume no adversities in the givernment as in case of Libya at the moment..)..So, Government securites have the beta 0..Whatever be the situation of the market, return is guaranteed...

CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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29 April 2011 Yes.

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If you learn in this way; your BETA of going answer WRONG is 0 whoever is the examiner.

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Sunshine

Sunshine (Querist)
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29 April 2011 Soo Goodie Goodie...Thanxxxx

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