If a stock's Beta is .8 during a period when the market portfolio was down by 10%, then, a priori, we could expect the return on this individual stock to:
A)Lose more than 10%
B)Lose, but less than 10%
C)Gain more than 10%
D)Gain, but less than 10%

Question

Quizplus · Accepted Answer

A stock with a beta of 0.8 is expected to be less volatile than the overall market. Therefore, if the market portfolio is down by 10%, we would expect this individual stock to go down, but by a lesser percentage than 10%. This means that the return on the individual stock would be negative, but less than 10%. Therefore, Choice B is the correct answer.

If a Stock's Beta Is