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

Question

Quizplus · Accepted Answer

Beta measures the sensitivity of the stock's returns to those of the market portfolio. A beta of 1 means the stock's returns are expected to move in line with the market, while a beta greater than 1 means the stock's returns are expected to be more volatile than the market and a beta less than 1 means the stock's returns are expected to be less volatile than the market.

A Stock's Beta Measures The