A security held in a large,well-diversified portfolio that has a beta of zero in a one-factor model will have an actual return:
A)of zero.
B)closely equal to the market risk premium.
C)closely equal to the expected return.
D)that is positive and less than the risk-free rate.
E)that is less than the risk-free rate and can be negative.

Question

Quizplus · Accepted Answer

A security with a beta of zero will not be affected by fluctuations in the market factor, hence its actual return will be closely equal to its expected return, which is determined by its own specific risk factors.

A Security Held in a Large,well-Diversified Portfolio That Has a Beta