A stock with a beta of zero would be expected to have a rate of return equal to
A)the prime rate.
B)the average AAA bond.
C)the market rate.
D)the risk-free rate.
E)zero.

Question

Quizplus · Accepted Answer

A stock with a beta of zero means that it has no correlation with the market, so its rate of return would be independent of the market. Therefore, its rate of return would be equal to the risk-free rate, which is the rate of return on an investment with zero risk (such as a treasury bond).

A Stock with a Beta of Zero Would Be Expected