What is the Beta for a security whose returns do not vary across states of nature (a risk-free security)? A) 0 B) Between 0 and 1 C) 1 D) 1 E)

Question

What is the Beta for a security whose returns do not vary across states of nature (a risk-free security)?
A) 0
B) Between 0 and 1
C) 1
D) > 1
E) < 0

Quizplus · Accepted Answer

If the returns never change, then they are unrelated to the market and the slope of the security's characteristic line would be zero. When the market rises and falls they stay unchanged, and so the Beta of such a security is zero.

What Is the Beta for a Security Whose Returns Do