22 November 2007
Beta is a measure of risk of a security, say shares, vis-a-vis the market. The market beta is 1. If a security's beta is less than 1 it is less riskier than market. If it is more than 1 it is more riskier.
Beta is calculated my multiplying the Correlation co efficient between concerned security and market with the security Std.deviation and then dividing the resultant by market Std.deviation. Books on Portfolio Management carry practical problems. Using beta, Cost of equity can be calculated under CAPM Model.
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