Question

A security with a beta of 1.0 should offer a return Greater than the return on...

A security with a beta of 1.0 should offer a return

Greater than the return on the market portfolio

Equal to the risk-free interest rate

Equal to the return on the market portfolio

Between the return on the market portfolio and the risk-free interest rate

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Answer #1

Beta is a measure of the volatility of a security’s price in comparison to the market as a whole.

A beta of 1 indicates that it has the same volatility as the market and the security’s price moves with the market. A beta of less than one indicates that the security is less volatile than the market. A beta of more than one indicates that a security is more volatile than the market.

Therefore, a security with a beta of 1.0 should offer a return equal to the return on the market portfolio.

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