In normal market conditions if a security has a negative beta:
A) the security always has a positive return.
B) the security has an expected return above the risk-free return.
C) the security has an expected return less than the risk-free rate.
D) the security has an expected return equal to the market portfolio.

Question

Quizplus · Accepted Answer

A negative beta means that the security moves in the opposite direction of the market. In normal market conditions, this is an undesirable characteristic as the market tends to go up over time. Therefore, investors will require a higher expected return to compensate for the higher risk associated with investing in a security with a negative beta. This means that the expected return will be less than the risk-free rate (option C). Option A is incorrect because a negative beta does not guarantee a positive return. Option B is incorrect because the expected return must be higher than the risk-free rate but not necessarily above it. Option D is incorrect because a negative beta means that the security is not correlated with the market, so it cannot have an expected return equal to the market portfolio.

In Normal Market Conditions If a Security Has a Negative