The sensitivity of a stock's returns to the returns on a market portfolio is referred to as the:
A)Stock's market risk premium
B)Stock's Beta
C)Market portfolio's systematic risk
D)Stock's unique risk

Question

Quizplus · Accepted Answer

The sensitivity of a stock's returns to the returns on a market portfolio is known as beta. Beta measures the systematic risk of a stock, which cannot be diversified away. The market risk premium is the excess return that investors expect to earn by holding a stock or portfolio over the risk-free rate of return. The market portfolio's systematic risk is the risk that cannot be eliminated or diversified away from a portfolio. Lastly, a stock's unique risk is the risk that is specific to an individual stock and can be diversified away by holding a well-diversified portfolio.

The Sensitivity of a Stock's Returns to the Returns on a Market