Which of the following best describes the beta coefficient?
A)A stock's beta measures its diversifiable (or company-specific) risk relative to its bond issues.
B)A stock's beta measures its diversifiable (or company-specific) risk relative to the market portfolio.
C)A stock's beta measures its market risk relative to the diversifiable risks of other firms.
D)A stock's beta measures its market risk relative to the market portfolio.

Question

Quizplus · Accepted Answer

The beta coefficient measures a stock's market risk relative to the market portfolio, which is represented by a beta of 1. If a stock has a beta greater than 1, it is considered riskier than the market, while a beta less than 1 indicates lower risk than the market. The beta coefficient cannot measure diversifiable risk, as this type of risk can be reduced through diversification in a well-diversified portfolio.

Which of the Following Best Describes the Beta Coefficient