Question

7. In equilibrium asset pricing, why is beta referred to as a normalized measure of risk? In this normalization process, what (by definition) has a beta equal to unity? 13 points.

Answer 1

28 29 30 31 15 n 1227438] WK. 33 in beta referred In equilibrium asset prling, why a a to as a hoomalised measure of lises o Betaa a measure of sisk - Beta refuse to the measurement of e Stock's volatility the potent to which the price fluchated in relation to the overall Position in the shock market. : Beta is also profesoal to used to make a comparison of the stock market liste with that of the other stocks. I simply put, - bela simples a sease of the stock kisk in comparison to the greater market. In short, bela expresses the I gap between minimising out and manmesine rekon. Therefore beta is used to silent and the volatility of a security which will help us in choosing the sensities that meets The criteria for wish. The value of a stock is Therefore based on the assumption that beta is the best measurement tool of ascut ainment sinh ones the long term.

I hoinalization process, what has a bea equal to mity ? A beta of unity kid than or 1 in the measurement of stocle maskot volatilih indicates that the stock's bolce tends to move falou with the market pole. A beta greater than mity would indicate that the stock is more volatile than those of the stocks in the market A bela less than 1 ornity indicates that the stock price ý less 1 volatile then that at the masket shorten Stocks