If the slope of the line measuring a stock's returns against the market's returns is positive,then the stock:
A) has a beta greater than 1.0.
B) has no specific risk.
C) has a positive beta.
D) plots above the security market line.

Question

Quizplus · Accepted Answer

A positive slope indicates that the stock's returns move in the same direction as the market's returns, so the stock has a positive beta. A beta greater than 1.0 would indicate that the stock is more volatile than the market, so A is incorrect. The slope does not provide information about specific risk (unsystematic risk), so B is incorrect. The position of the stock on the security market line depends on both its beta and its expected return, which cannot be determined from the slope alone, so D is incorrect.

If the Slope of the Line Measuring a Stock's Returns