For each 1% change in the market portfolio's excess return, the investment's excess return is expected to change by percent due to risks that it has in common with the market.

Question

Quizplus · Accepted Answer

This is the definition of beta, which measures the sensitivity of an investment's excess return to changes in the market portfolio's excess return. A beta of 1 means that the investment's excess return will change by the same percentage as the market portfolio's excess return. A beta of less than 1 means that the investment is less sensitive to market movements, while a beta of more than 1 means that the investment is more sensitive to market movements.

For Each 1% Change in the Market Portfolio's Excess Return