A firm with a beta of 1.0 and when held in a well-diversified portfolio should be considered to have ________ risk than the market portfolio.

Question

Quizplus · Accepted Answer

A beta of 1.0 means that the stock has the same level of systematic risk as the market portfolio. When held in a well-diversified portfolio, the specific risk of the stock is diversified away, leaving only the systematic risk, which is the same as the market portfolio. Therefore, the firm should be neither more nor less risky than the market portfolio.

A Firm with a Beta of 1