An equity security with systematic risk equal to the average amount of systematic risk of all equity securities in the market:

Question

Quizplus · Accepted Answer

A security with systematic risk equal to the market average will have a market beta of 1, which is the beta of the market itself. This means the security is as risky as the market on average, and therefore, should expect to earn the same rate of return as the average stock in the market portfolio. Therefore, both statements are correct. Choice C is incorrect because the security does give insight into the risk premium of stocks since it has a market beta of 1.

An Equity Security with Systematic Risk Equal to the Average