Stock X has a lower beta than Stock Y. The market return for next month is expected to be either -1 percent, +1 percent, or +2 percent with an equal probability of each scenario. The probability distribution of Stock X returns for next month is

Question

Quizplus · Accepted Answer

Since Stock X has a lower beta than Stock Y, it is less sensitive to market movements. Therefore, the distribution of its returns will be less dispersed than that of Stock Y, regardless of the market return scenario.

Stock X Has a Lower Beta Than Stock Y