Question

The beta for the market as a whole equals 1.0.

a. true

b. false

Answer 1

Beta is used to measure the volatility or systematic risk that could carried out in portfolio in comparison to the market as the whole.

This makes it capital and asset pricing model calculates the expected return of an asset based on its beta and expected market returns.

This should concern with estimating future beta which is a difficult problem.

Answer 2

‘The beta for the market as a whole equals 1.0’ is a TRUE statement.

Explanation:

• The beta is used for measuring the volatility or the risk factor involved in comparison to the ‘market as a whole’.  

• The beta for the market as a whole is at 1:0 because if the beta is more than 1.0, then it shows that the security's price is more ‘volatile than the market’.  

• This can be shown by an example that if the beta of an asset is at 1.2, then it is said to be 20% more ‘volatile than the market’.  

• The smaller caps and technology stocks normally have ‘higher betas’ than the benchmark of the market.  

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