How to Answer: Explain to me what Beta is in your own words? Why is it so important?
Advice and answer examples written specifically for a Finance job interview.
5. Explain to me what Beta is in your own words? Why is it so important?
How to Answer
Give the definition of Beta in your own words:
1. The beta of a company measures how the company's equity market value changes with the change of market overall. It is used in the Capital Asset Pricing Model (CAPM) to estimate the return of an asset.
2. Beta is an expression of how volatile an investment is compared to the overall market.
Written by Bobbi Witt on June 18th, 2018
Entry Level
"Beta is a measure of the volatility of an investment compared with the market as a whole. The market has a beta of 1, while investments that are more volatile then the market have a bet greater then 1 and those that are less volatile have a beta less then 1."
Written by Bobbi Witt
Experience
"Beta is an expression of how volatile an investment is compared to the overall market. A beta of 1 indicates that the investment will move with the market. A beta of less than 1 means that the investment will be less volatile than the market. For example, if a stock's beta is 1.3, then theoretically it's 30% more volatile than the broad market. Beta can help investors choose investments that match their specific risk preferences. A risk-averse investor, for example, may want to avoid overweighting their portfolio with high-beta stocks to avoid excessive volatility."
Written by Bobbi Witt on June 18th, 2018