Assume a growth stock mutual fund has a beta of 1.3. If the stock market increases by 9%, you would expect this mutual fund to:

Assume a growth stock mutual fund has a beta of 1.3. If the stock market increases by 9%, you would expect this mutual fund to:

• A. decrease by 9%.
• B. increase by 9%.
• C. increase by 11.7%.
• D. decrease by 11.7%.

Answer: (C)

The beta of a stock or mutual fund is a measure of its volatility in relation to the market. A beta greater than 1 indicates that the asset is expected to be more volatile than the market, while a beta of less than 1 suggests it is less volatile. In this scenario, the mutual fund has a beta of 1.3, meaning it is expected to be 30% more volatile than the overall market. When the market increases by 9%, you can calculate the expected increase in the mutual fund by applying the beta. This is done by multiplying the market increase by the beta: Expected increase in mutual fund = Market increase × Beta Expected increase in mutual fund = 9% × 1.3 = 11.7% This means that if the stock market rises by 9%, the mutual fund is anticipated to rise by 11.7%. This reflects the fund's higher sensitivity to market movements as indicated by its beta. Therefore, an 11.7% increase is the correct outcome based on the mutual fund's volatility in relation to the market.

The beta of a stock or mutual fund is a measure of its volatility in relation to the market. A beta greater than 1 indicates that the asset is expected to be more volatile than the market, while a beta of less than 1 suggests it is less volatile. In this scenario, the mutual fund has a beta of 1.3, meaning it is expected to be 30% more volatile than the overall market.

When the market increases by 9%, you can calculate the expected increase in the mutual fund by applying the beta. This is done by multiplying the market increase by the beta:

Expected increase in mutual fund = Market increase × Beta

Expected increase in mutual fund = 9% × 1.3 = 11.7%

This means that if the stock market rises by 9%, the mutual fund is anticipated to rise by 11.7%. This reflects the fund's higher sensitivity to market movements as indicated by its beta. Therefore, an 11.7% increase is the correct outcome based on the mutual fund's volatility in relation to the market.