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What is always true about the beta on asset which pays $1 in good times and...

What is always true about the beta on asset which pays $1 in good times and $0 in bad times:

A. 0 < beta < 1

B. beta > 1

C. beta > 0

D. beta = 1

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Answer #1

What is always true about the beta on asset which pays $1 in good times and $0 in bad times?

The beta will be equal to one in above condition

Therefore correct answer is option D. beta = 1

Beta is a measure of volatility or market risk and beta of the market is always equal to one. If an asset which pays $1 in good times and $0 in bad times; it shows that the asset is perfectly correlated with the market index (benchmark index). Beta equal to one indicates that the asset moves with the market and beta above the market index is higher than one and it means that asset is more volatile than market index. Beta below the market index is lower than one and it means that asset is less volatile than market index.

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