If the line measuring a stock's historic returns against the market's historic returns has a slope greater than 1.0, then the:
A)Stock is currently underpriced
B)Market risk premium is increasing
C)Stock has a significant amount of unique risk
D)Stock has a Beta exceeding 1.0

Question

Quizplus · Accepted Answer

A slope greater than 1.0 indicates that the stock's returns are more volatile than the market's returns, which means that the stock has a beta exceeding 1.0. Beta measures a stock's sensitivity to market movements, and a beta greater than 1.0 means that the stock is more risky than the market as a whole. Therefore, option D is the correct answer. Options A, B, and C are not necessarily true based on the given information.

If the Line Measuring a Stock's Historic Returns Against the Market's