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.

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