For each 1% change in the market portfolio's excess return, the investment's excess return is expected to change by ________ due to risks that it has in common with the market.

Question

Quizplus · Accepted Answer

Beta is the measure of the systematic risk of an investment, which represents the extent to which an investment's returns move with the market portfolio's returns. A beta of 1 indicates that the investment's returns move in tandem with the market, while a beta of less than 1 suggests the investment is less volatile than the market, and a beta of more than 1 indicates that the investment is more volatile than the market. Therefore, for each 1% change in the market portfolio's excess return, the investment's excess return is expected to change by the beta coefficient due to risks that it has in common with the market.

For Each 1% Change in the Market Portfolio's Excess Return