Assume the single-factor model is applied to a security that has a negative factor beta.The security will:
A)always have a positive rate of return.
B)have an expected return greater than the risk-free rate.
C)have an actual return that equals the risk-free rate.
D)have an expected return equal to the market rate of return.
E)have an actual rate of return that can be positive,negative,or zero.

Question

Quizplus · Accepted Answer

The single-factor model, which includes the Capital Asset Pricing Model (CAPM), suggests that a security's return is influenced by its sensitivity to a single common factor (usually the market return) and an idiosyncratic component. A negative factor beta means the security's return moves in the opposite direction of the market return. However, the actual return can still be positive, negative, or zero, depending on the specific movements of the market and the security's unique characteristics.

Assume the Single-Factor Model Is Applied to a Security That