Asked by Ashley Sanchez on Jul 22, 2024
Verified
Which of the following is true regarding the beta coefficient?
A) It is a measure of unsystematic risk.
B) A beta greater than one represents lower systematic risk than the market.
C) Generally speaking, the higher the beta the higher the expected return.
D) A beta of one indicates an asset is totally risk-free.
E) The risk premium of an asset will increase if the beta of that asset decreases.
Beta Coefficient
A measure of a stock's volatility in relation to the overall market, used in the Capital Asset Pricing Model to determine the expected return of the asset.
Systematic Risk
The danger that affects the whole market or a specific segment of the market, commonly referred to as market risk.
Unsystematic Risk
The risk specific to an individual asset or company, such as management decisions or product recalls, which can be mitigated through diversification.
- Comprehend the concept of beta as a measure of systematic risk and its impact on expected returns.
Verified Answer
AP
April PruittJul 22, 2024
Final Answer :
C
Explanation :
Beta is a measure of the systematic risk of a security or a portfolio in comparison to the market as a whole. A higher beta indicates higher risk, but also implies a higher expected return as compensation for that risk.
Learning Objectives
- Comprehend the concept of beta as a measure of systematic risk and its impact on expected returns.