1. What are beta measures? (a) The volatility of the security (b) The joint volatility of any two securities in a portfolio (c) The volatility of a security divided by the volatility of the market index (d) The relative co-movement of a security with the market portfolio 2. Which of the following statements about a stock's beta is true? I. A beta greater than one is riskier than the market II. A beta less than one is less risky than the market III. A beta less than one is risk-free IV. A beta less than one is undervalued (a) Statement I alone (b) Statement III alone (c) Statements I and III (d) Statements I and III
1. What are beta measures? (a) The volatility of the security (b) The joint volatility of any two securities in a portfolio (c) The volatility of a security divided by the volatility of the market index (d) The relative co-movement of a security with the market portfolio 2. Which of the following statements about a stock's beta is true? I. A beta greater than one is riskier than the market II. A beta less than one is less risky than the market III. A beta less than one is risk-free IV. A beta less than one is undervalued (a) Statement I alone (b) Statement III alone (c) Statements I and III (d) Statements I and III
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:**1. What are beta measures?**
(a) The volatility of the security
(b) The joint volatility of any two securities in a portfolio
(c) The volatility of a security divided by the volatility of the market index
(d) The relative co-movement of a security with the market portfolio
---
**2. Which of the following statements about a stock’s beta is true?**
I. A beta greater than one is riskier than the market
II. A beta less than one is less risky than the market
III. A beta less than one is risk-free
IV. A beta less than one is undervalued
(a) Statement I alone
(b) Statement III alone
(c) Statements I and III
(d) Statements I and II
Expert Solution
Step 1
Beta helps in measuring the systematic risk of a security or portfolio compared to the market as a whole. Beta is used in the capital asset pricing model (CAPM) which helps in describing the relationship between systematic risk and expected return for the assets usually stocks. The stocks with betas higher than 1.0 tend to be more volatile than the S&P 500 which has a beta of 1.
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