Assuming that the risk (standard deviation) of the market is 25 percent, calculate the beta for the following assets:

1. A short-term U.S. Treasury bill.

2. Gold, which has a standard deviation equal to the standard deviation of the market but a zero correlation with the market.

3. A new emerging market that is not currently included in the definition of “market”—

the emerging market’s standard deviation is 60 percent, and the correlation with the market is –0.1.

4. An initial public offering or new issue of stock with a standard deviation of 40 percent and a correlation with the market of 0.7 (IPOs are usually very risky but have a relatively low correlation with the market).

We use the formula for beta in answering the preceding questions:

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