A security with a beta of zero should have an excess return of
A) zero.
B) the risk free rate.
C) the market return.
D) the long T-bond rate.

Question

Quizplus · Accepted Answer

A security with a beta of zero is uncorrelated with the market, meaning it should not earn any excess return over the risk-free rate. Excess return is typically associated with taking on additional risk, which a beta of zero implies the security does not do relative to the market.

A Security with a Beta of Zero Should Have an Excess