Question

1. A beta coefficient of +1 represents an asset that ________.

A. has a higher expected return than the market portfolio

B. has the same expected return as the market portfolio

C. has a lower expected return than the market portfolio

D. is unaffected by market movement

2. A beta coefficient of +1 represents an asset that ________.

A. has a higher expected return than the market portfolio

B. has the same expected return as the market portfolio

C. has a lower expected return than the market portfolio

D. s unaffected by market movement

3. A beta coefficient of -1 represents an asset that ________.

A. is more responsive than the market portfolio

B. has the same response as the market portfolio but in opposite direction

C. is less responsive than the market portfolio

D. is unaffected by market movement

Answer 1

1. B. has the same expected return as the market portfolio

Beta is measure of stock's systematic risk it measures the correlation between movement of stock prices and market index. If beta coefficient is +1 which means both market and stock move in some direction with equal movement. Thus, if beta is +1 then expected return of assets is same as expected return of the market portfolio.

2. It is same question as 1, thus solution would be same as above.

3. B. has the same response as the market portfolio but in opposite direction

As discussed above beta coefficient shows the correlation between asset and market and if beta -1 this means assets and market is perfectly negative correlated which means asset and market move in opposite direction with same amount of response.

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.