An asset with a beta of 0.5 has
A) 5 percent more risk than a risk-free asset.
B) 50 percent more risk than a risk-free asset.
C) half the nondiversiﬁable risk as a market portfolio.
D) 5 times the nondiversiﬁable risk as a market portfolio.

Question

Quizplus · Accepted Answer

A beta of 0.5 indicates that the asset is half as volatile as the overall market. Therefore, it has half the nondiversifiable risk as a market portfolio. Option A is incorrect because 5 percent more risk than a risk-free asset would result in a negative beta. Option B is incorrect because 50 percent more risk than a risk-free asset would result in a beta greater than 1. Option D is incorrect because it implies that the asset has a beta of 5, which is unrealistic.

An Asset with a Beta of 0.5 Has