A stock's beta measures the:
A) average return on the stock.
B) variability in the stock's returns compared to that of the market portfolio.
C) difference between the return on the stock and return on the market portfolio.
D) market risk premium on the stock.

Question

Quizplus · Accepted Answer

Beta measures the extent of the variability of a stock's returns in comparison to returns of the market portfolio. A beta of 1 indicates that the stock's returns vary with the market returns, while a beta greater than 1 indicates that the stock's returns vary more than the market returns, and vice versa. Beta is used to determine the systematic risk of a stock or portfolio of stocks.

A Stock's Beta Measures The