A security has a beta of 1.20. Is this security more or less risky than the market? Explain. Assess the impact on the required return of this security in each of the following cases. a. The market return increases by 15%. b. The market return decreases by 8%. c. The market return remains unchanged. A security has a beta of 1.20. Is this security more or less risky than the market? (Select the best choice below.) OA. The security and the market are equally risky because the market has a beta of 1. OB. The security and the market are equally risky because the market has the same beta of 1.20. OC. The security is less risky than the market because the market has a beta of 1. OD. The security is more risky than the market because the market has a beta of 1.
A security has a beta of 1.20. Is this security more or less risky than the market? Explain. Assess the impact on the required return of this security in each of the following cases. a. The market return increases by 15%. b. The market return decreases by 8%. c. The market return remains unchanged. A security has a beta of 1.20. Is this security more or less risky than the market? (Select the best choice below.) OA. The security and the market are equally risky because the market has a beta of 1. OB. The security and the market are equally risky because the market has the same beta of 1.20. OC. The security is less risky than the market because the market has a beta of 1. OD. The security is more risky than the market because the market has a beta of 1.
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
Related questions
Question
CH 5 Q6 practice
Transcribed Image Text:### Understanding Beta and Risk Assessment of Securities
A security has a beta of 1.20. Is this security more or less risky than the market? To determine this, we need to assess the impact on the required return of this security in each of the following cases:
1. **The market return increases by 15%**.
2. **The market return decreases by 8%**.
3. **The market return remains unchanged**.
---
#### Multiple Choice Question
A security has a beta of 1.20. Is this security more or less risky than the market? **(Select the best choice below.)**
- **A.** The security and the market are equally risky because the market has a beta of 1.
- **B.** The security and the market are equally risky because the market has the same beta of 1.20.
- **C.** The security is less risky than the market because the market has a beta of 1.
- **D.** The security is more risky than the market because the market has a beta of 1.
**Explanation:**
- **Beta Value:** A beta greater than 1 indicates that the security is more volatile compared to the overall market. A beta of exactly 1 implies that the security's price will move with the market.
- **Market Beta:** Typically has a baseline beta of 1, suggesting standard market risk.
In this context, the correct understanding implies option **D** is apt, as a beta of 1.20 signifies higher volatility than the market.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
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.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
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