**Question 3: Understanding Stock Beta**Which of the following statements about a stock’s beta is true?- (a) A beta greater than one is less risky than the market- (b) A beta less than one is risk-free- (c) A beta greater than one is overvalued- (d) A beta greater than one is riskier than the market**Explanation:**Beta is a measure of a stock's volatility in relation to the overall market. A beta greater than one indicates that the stock is more volatile and thus riskier compared to the market. A beta less than one suggests that the stock is less volatile, implying lower risk compared to the market. It is important to note that beta does not indicate whether a stock is overvalued or undervalued, nor does it imply that a stock with a beta less than one is risk-free.

Beta is a measure of Systematic risk of a stock or portfolio. Generally, the market beta is always…

3. Which of the following statements about a stock's beta is true? (a) A beta greater than one is less risky than the market (b) A beta less than one is risk-free (c) A beta greater than one is overvalued (d) A beta greater than one is riskier than the market

3. Which of the following statements about a stock's beta is true? (a) A beta greater than one is less risky than the market (b) A beta less than one is risk-free (c) A beta greater than one is overvalued (d) A beta greater than one is riskier than the market

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

See similar textbooks

Related questions

Q: If the fair value of a stock is more than its market value, which of the following is a reasonable…

A: Fair value of a stock is also known as its intrinsic value.Intrinsic value of a stock is the present…

Q: 7. If the point representing a stock's return and risk is above the security market, then_ B. the…

A: The stock has a higher return and higher risk compared to the average return and risk of the…

Q: Hello The first question is to how to the formula used in this problem. This is a question that you…

A: Beta and standard deviation both are common measures which are used to find changes in stock but…

Q: What is called the called the return on a stock beyond what would be predicted from market movements…

A: Returns can be of various types

Q: Evaluate the following statement: “Two stocks should be viewed as equally risky because they have…

A: Let us understand the above terms with a help of an example. Say, the Expected return of Stock X is…

Q: Which of the following statements related to risk is (are) true: (i) Beta measures risk that cannot…

A: Risk are of two types - systematic risk and unsystematic risk

Q: 2) Since must be 1. The measures the stock's reactions to movements in the market, the beta for the…

A: Beta is measure of change in stock price with regard to change in market. There are 2 types of…

Q: Fill in the blanks: Stock returns can be explained by the stock's and the stock's A. beta; market…

A: stock return cam be calculated using Capital asset pricing model or dividend discount model.

Q: Which of the following is TRUE? You should choose a stock with the greater Jensen’s alpha…

A: Jenson's alpha, Treynor ratio, Sharpe ratio are the portfolio measurement ratios which measures the…

Q: Problem 4d: State whether the following statements are true or false. In each case, provide a brief…

A: Options are derivative contracts in which the option holder has an option to buy or sell the…

Q: 1. The diversifiable risk of a portfolio: a. Is correlated with systematic risk. b. Can be made…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: What impact does each of the followingparameters have on the value of a call option?(5) Variability…

A: A call option provides certain rights to an individual regarding purchasing any stock at a strike…

Q: 4. Which of the following statements is FALSE? A) A stock's return is perfectly positively…

A: Return on stock is the return that is gained by the investor for an investment in stock.

Q: Assume that the CAPM assumptions hold. Consider the following statements: i. A stock with a beta…

A: Capital asset pricing model is the risk adjusted model for finding out risk adjusted return after…

Q: Under which of the following circumstances would you want to buy a stock? Select one: a. The HPR is…

A: Stock also known as share or equity represent a part of ownership in a publicly traded company. When…

Q: Which of the following is true? a. Beta of a stock cannot be negative b. SML is an acronym for Stock…

A: Investors in the stock market need to have a strong understanding of various concepts related to…

Q: If you compare two stocks which have identical firm-specific risk. However, one of these options has…

A: Beta is a numerical measurement that measures how a stock reacts to movements in the general stock…

Q: Which of the following is/are an examples of unsystematic risk of a stock O a Political risk…

A: Operating Risk

Q: The betas are identical when the projected rate of return of a security and the market are both…

A: Beta is sensitivity of stock return with overall market rate of return.

Q: O The market rate of return. O Zero rate of return. A negative rate of return. O The risk-free rate.

A: Expected rate on security depends on the risk free rate and market rate and risk related to security…

Q: 3. The beta for the risk-free investment is closest to: A) 1. B) 0. C) Unable to answer this…

A: Beta is a measure of systematic risk which cannot be eliminated through diversification. In other…

Q: a) Discuss why international stock might have high volatility but low betas.

A: Beta is the sensitivity of the price of an asset to movements in the market as a whole and is a…

Q: Why is beta the theoretically correct measure of a stock’s risk?

A: Introduction: Risk refers to the degree of volatility involved in the anticipated return on…

Q: If the intrinsic value of a stock is greater than its market value, which of the following is a…

A: Fair value of a stock is also known as its intrinsic value. Intrinsic value of a stock is the…

Q: 7. Which of the following statements is FALSE? A) The market portfolio is the efficient portfolio.…

A: Market portfolio refers to the group of investments that involves every type of asset available…

Q: Stock A has a beta of 1.5 and Stock B has a beta of 0.8. Which of the following statements is most…

A: Beta is an important measure of risk used to evaluate stocks. It is a measure of a stock's…

Q: Which of the following techniques is used to value stock options? a. Black-Scholes method b.…

A: black scholes method is used to value options

Q: Critically explain the risk premium of a zero-beta stock. Does this mean you can lower the…

A: Zero Beta Portfolio: A portfolio of zero beta has zero systematic risk. Therefore, such portfolios…

Q: In efficient markets, the rate of return on a stock should be: A. always greater than the risk-free…

A: Efficient market is the market in which stock prices refelcts all the information available.

Q: What are the recommended options strategies when you expect the market has extreme (high)…

A: We have four basic option strategies: buy call, buy put, write call, and write put, because there…

Q: Which of the following statement is most accurate in analyzing a stock? If the security has a lower…

A: If Security has Intrinsic value < Current Price - Overvalued, SELL the share Intrinsic value…

Q: Which of the following stocks have the highest systematic risk? A. A stock with a high…

A: The objective of the question is to identify which stock among the given options has the highest…

Q: What is Stock Beta and Describe a Stock with little risk and Stock with high risk? Define Beta and…

A: Stock Beta: Beta is a measure of a stock's sensitivity to market movements. It quantifies the…

Q: How can you evaluate if stocks are underperforming?

A: There are several ways to evaluate whether a stock is underperforming, and it depends on the…

Q: Stock prices and stand-alone risk Risk is the potential for an investment to generate more than one…

A: Portfolio risk refers to the overall risk associated with a portfolio of investments rather than…

Q: Suppose the beta estimated from the CAPM for stock A is 2.3 and stock B is 1.1. Which of the…

A: Option A wrong Because as per CAPM, the higher the beta, the higher should be return , since stock…

Q: Which two of the following provide useful rules to assess the degree of risk reduction (provided…

A: Risk: Risk is the idea of future uncertainty regarding departure from anticipated earnings or…

Q: If you believe the stock market may crash and would like to reduce your portfolio risk, what Beta…

A: Beta is a measure a systematic risk. Systematic risk is the risk which cannot be eliminated by…

Q: Which form of market efficiency is the best among weak, semi strong and strong?

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: If markets are efficient then: All stocks will have the same expected returns All stocks will have…

A: The Efficient Market Hypothesis (EMH) is a theory that suggests that financial markets are efficient…

Q: Stocks A and B have the same expected return, but Stock B has higher volatility than Stock A.…

A: When making investment decisions, it is important to consider a variety of factors such as expected…

Question

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

5 According to the CAPM, the stocks which are located above the security market line (SML) are... those which are below the SML are.... and the stocks which are exactly placed on the line are.... Multiple Choice Overvalued; undervalued; correctly valued. Undervalued; overvalued; correctly valued. SML cannot help us find the over- or under-valued stocks. Correctly valued; correctly valued; overvalued. Correctly valued; correctly valued; correctly valued.
b) "If a stock had high returns so far, it will have low returns in the future". Discuss whether this statement is true or false, based on the knowledge of the different theories and models out there.
10
Beta measures a stock's sensitivity to market risks True b. False a. [Answer C] [Answer D]
A risky security has less risk than the overall market. What must the beta of this security be? O 0 but< 1 O 1 O The beta cannot be determined based on the information provided.
please answer both. If a stock's fair return increases, what will happen to the stock's value? A. It will increase. B. It will not change. C. It will decrease. If the market risk premium rises, what will happen to the stock's price? A. It will not change. B. It will increase. C. It will decrease.
If the intrinsic value of a stock is greater than its market value, which of the following is a reasonable conclusion? O 1. The stock offers a high dividend payout ratio. O 2. The market is overvaluing the stock. O 3. The stock has a low level of risk. O 4. The market is undervaluing the stock.
Firm A's stock returns are correlated with market returns at 0.90, while Firm B's stock returns are correlated with market returns at 0.50. Therefore, it must be that the βA>βB. A) True B) False
According to the CAPM, a stock's expected return is positively related to its beta. True or False True False
Which of the following(s) would be ways to reject the CAPM? a showing that there exist a stock with zero beta with the market earns an expected return higher than the risk free rate b showing that there exist a stock that earns higher expected return than the market c Showing that a portfolio consistently generates a negative alpha d Showing that a certain factor predicts expected return even after controlling for market beta
Which one of the following statements is correct? When more stocks are added into a portfolio, the beta of that portfolio will a) always decrease. The beta of ABC and XYZ is 1.95 and 0.88, respectively. This information b) implies that ABC has less market risk than XYZ. A stock has a beta of 1.5. It implies that this stock has lower total risk than c) the overall market. The beta of ABC and XYZ is 1.95 and 0.88, respectively. This information implies that ABC has higher total risk than XYZ. The risk premium investors demand from a stock will increase as the beta of the stock increases.
No matter how the stock price fluctuates, as long as it can provide a positive return, the risk of investing in stocks is low.If the concept of standard deviation is applied, is this true or false?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS