What does 'beta' indicate in financial calculations?

'Beta' is a measure used in finance to indicate the volatility or risk of an investment relative to the overall market or a benchmark index. Specifically, it represents how much the price of a stock or other asset is expected to move in relation to a movement in the market. A beta of 1 means that the investment moves in line with the market; a beta greater than 1 indicates higher volatility (meaning it may rise more than the market in good times and fall more in bad times), while a beta less than 1 indicates lower volatility.

In the context of assessing investment risk, beta serves as an important tool for investors when deciding how to diversify their portfolios and manage risk exposure. It helps in understanding how asset prices may be influenced by broader market movements.

The other options refer to different financial concepts. The fixed rate of return on debt is related to bond yields, the average cost of a company's assets involves capital cost calculations, and the equity to debt ratio is a measure of financial leverage. These concepts are significant but do not pertain to the volatility measure that beta provides.