A risky security has less risk than the overall market.What must the beta of this security be? A)0 B) 0 but 1 E)The beta cannot be determined based on the information provided.

Question

A risky security has less risk than the overall market.What must the beta of this security be?
A)0
B)> 0 but < 1
C)1
D)> 1
E)The beta cannot be determined based on the information provided.

Quizplus · Accepted Answer

If the security has less risk than the overall market, it means it has a beta of less than 1. Therefore, the best choice is B, which represents a beta value greater than 0 but less than 1. Choices A and C cannot be the answer because the security is risky, which means it must have some level of risk associated with it. Choice D cannot be the answer because a beta greater than 1 indicates that the security is riskier than the overall market, which contradicts the given information. Finally, choice E is incorrect because the information given is sufficient to determine that the beta is less than 1.

A Risky Security Has Less Risk Than the Overall Market