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Choose the correct answer and explain briefly 8. What is the expected return of a zero-beta security? A. Market rate of retur

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Answer #1

8)

D. Risk free rate of return

Beta represents the systematic risks of a security. A zero beta means there is no risk associated with the security. When the risk is zero, investors will earn the risk free rate of return. Risk rate of returns are returns generated on risk free assets such as treasury bonds. These bonds have no risk and therefore zero beta.  

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