If the investor desires less risk than the market,he or she:

Question

Quizplus · Accepted Answer

Buying stocks with betas less than 1.0 is a way to reduce the risk of the portfolio compared to the market. A beta less than 1.0 means the stock is less volatile than the market, and therefore likely to have lower risk. Choosing stocks with alphas of zero or buying stocks only when the security market line is on a 45 degree angle do not necessarily guarantee lower risk. Making sure the risk-free rate is higher than the expected market return would also not necessarily reduce risk, as it only affects the expected return, not the risk level.

If the Investor Desires Less Risk Than the Market,he or She