per CAPM: E(r) = Risk Free Rate "RFR" + ?(Rmkt - RFR)
And....Investopedia explains Beta:
"Beta is calculated using regression analysis, and you can think of beta as the tendency of a security's returns to respond to swings in the market. A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market."
So...with the market rising 5%...
With a Beta of 1.1, stock A will RISE by MORE THAN 5%
With a Beta of 0.75, stock B will RISE by LESS THAN 5%
FYI - A negative beta means the stock moves inversely (opposite) the direction of the market. Thus, with a rising market that stock would decline and, conversely, with a declining market that stock would rise.
Rise, more than; rise, less than
Stock A has a beta of 1.1 and Stock B has a beta of 0.75. If the return on the market as a whole rises by 5% we would expect that the return on Stock A will ______ (rise/decline) by _____ (more than/less than) 5% and the return on Stock B will ________ (rise/decline) by _______ (more than/less than) 5%.
