Asked by Michael Mocan on Jun 20, 2024
Verified
By definition,which of the following is correct regarding the beta of the market?
A) The market beta will depend on the composition of the market portfolio and could be greater than or less than 1.
B) The market beta will be less than 1 as the market portfolio is generally more diversified than an individual's portfolio.
C) The market beta will be equal to 1 given that it is the portfolio containing all assets.
D) The market beta will be great than 1 as the market portfolio is generally more diversified than an individual's portfolio.B
Market Beta
A measure of a stock's volatility in relation to the market; a beta greater than 1 indicates higher volatility than the market.
Market Portfolio
A theoretical bundle of investments that includes every type of asset available in the market, with each asset weighted according to its market capitalization.
Composition
The makeup or structure of something, such as the arrangement and proportion of parts within a work of art or a financial portfolio.
- Understand the concept and interpretation of beta in the context of the market and individual securities.
- Distinguish between the market beta and individual stock betas.
Verified Answer
SA
Sanchita AgarwalJun 22, 2024
Final Answer :
C
Explanation :
The market beta is defined as 1 because it serves as the benchmark for comparing the volatility of individual stocks or portfolios. A beta of 1 indicates that the security's price will move with the market.
Learning Objectives
- Understand the concept and interpretation of beta in the context of the market and individual securities.
- Distinguish between the market beta and individual stock betas.