Question

Which of the following statements is true with respect to beta?

Multiple Choice

A - All of the above.

B-- A stock with a beta > 1 is more volatile than the market portfolio.

C -- The market portfolio has a beta of "0".

D -- A stock with a beta < 1 will outperform the market portfolio when the market is up.

Answer 1

Answer

B. A stock with a beta > 1 is more volatile than the market portfolio.

Explanation:

Beta is used to determine the volatility of an asset or portfolio in relation to the overall market.

The third options is incorrect because
the overall market portfolio has a beta of 1.

If a stock moves less than the market, the stock's beta is less than 1.0. Low-beta stocks pose less risk but typically yield lower returns.
Therefore, such stocks cannot outperform the market portfolio when market is up and hence fourth option is also incorrect.

The stock that swings more than the market has a beta greater than 1.0. Therefore ,stock with a beta > 1 is more volatile than the market portfolio. Hence option b is the correct option.