The market -beta of a stock
A)reflects the degree to which the stock's return varies with the company's earnings per share.
B)depicts the relationship between a stock's expected return and its risk as measured by its standard deviation.
C)reflects the degree to which the stock's return moves with the return on a market index.
D)reflects the degree to which the stock's return varies with inflation.

Question

Quizplus · Accepted Answer

The market beta of a stock reflects the degree to which the stock's return moves with the return on a market index, typically the S&P 500. It is a measure of systematic risk, or the risk that cannot be diversified away by holding a diversified portfolio, as it represents the sensitivity of the stock's return to movements in the overall market. A beta of 1 indicates that the stock's returns move in line with the market, while a beta higher than 1 suggests the stock is more volatile than the market, and a beta less than 1 suggests the stock is less volatile than the market. Therefore, choice C accurately describes the function of a stock's market beta. The market-beta of a stock reflects the degree to which the stock's return moves with the return on a market index. It measures the volatility of a stock in relation to the overall stock market. The beta of the market is considered to be 1.0, and a stock with a beta of 1.0 moves in (perfect) tandem with the market.

The Market -Beta of a Stock