Question

A stock's beta measures the:

1. quantity of systematic risk an investor must bear.

2. quantity of firm specific risk an investor must bear

3. risk aversion of investors.

Answer #1

Beta is a measure of the volatility or systematic risk 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, the answer is **option a.**

In case of any query, kindly comment on the solution.

One index of systematic risk is a stock's beta coefficient.
a. True
b. False

A stock's beta is more relevant as a measure of risk to an
investor who holds only one stock than to an investor who holds a
well-diversified portfolio. Group of answer choices
True
False

The security market line (SML) is an equation that shows the
relationship between risk as measured by beta and the required
rates of return on individual securities. The SML equation is given
below:
If a stock's expected return plots on or above the SML, then the
stock's return is -Select-insufficientsufficientCorrect 1 of Item 1
to compensate the investor for risk. If a stock's expected return
plots below the SML, the stock's return is
-Select-insufficientsufficientCorrect 2 of Item 1 to...

Which of the following statements is/are incorrect? 1) A
security's beta measures its market risk. 2) If investors become
less risk averse, the slope of SML will decrease accordingly. 3)
The tighter the probability distribution of its expected future
return, the greater risk of a given investment as measured by its
standard deviation. 4) SML is a graphical depiction of CAPM?

Risk and Rates of Return: Security Market Line The security
market line (SML) is an equation that shows the relationship
between risk as measured by beta and the required rates of return
on individual securities. The SML equation is given below:
If a stock's expected return plots on or above the SML, then the
stock's return is (Pick one: sufficent /
insufficient) to compensate the investor for risk. If
a stock's expected return plots below the SML, the stock's...

various measures of quantifiable risk including Standard
Deviation, Beta and VAR. How can an investor use each of these
measures when managing their own investment portfolio?

Risk and Rates of Return: Security Market Line
The security market line (SML) is an equation that shows the
relationship between risk as measured by beta and the required
rates of return on individual securities. The SML equation is given
below:
If a stock's expected return plots on or above the SML, then the
stock's return
is -Select-insufficient,
sufficient to compensate the investor for risk. If a
stock's expected return plots below the SML, the stock's return is
-Select-insufficient, sufficient
to...

(2) Apple stock has a market beta of 2 and Facebook stock has a
market beta of 1. The risk-free rate is 5% and the market return is
10%. Which of the following statements is incorrect:
Apple stock has more firm-specific risk than Facebook
stock
Apple stock has a higher expected rate of return than the
market
Apple stock has more systematic risk than Facebook stock

Suppose the risk-free rate is 3% and the average investor has a
risk-aversion coefficient of 1.4. Further, assume that the standard
deviation for the market portfolio is 14%.
1. What is the equilibrium value of the market risk premium?
2. What is the expected rate of return on the market?
3. What is the equilibrium value of the market risk premium if
the average investor had a risk aversion coefficient of 1.1 instead
of 1.4?
d. Why does the answer...

1) Please describe the meaning of diversification. How does
diversification reduce risk for the investor?
2) How do investors measure the risk of individual common
stocks?

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 14 minutes ago

asked 33 minutes ago

asked 35 minutes ago

asked 39 minutes ago

asked 57 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago