stock’s contribution to the market risk of a well-diversified portfolio is called Q1. ______risk. It can be measured by a metric called the beta coefficient, which calculates the degree to which a stock moves with the movements in the market. Q2. Based on your understanding of the beta coefficient, indicate whether each statement in the following table is true or false: Statement True False Over time, a stock with a beta of 1.0 produces a return that goes up and down with a 1:1 relationship with the return on the market. Beta measures the volatility in st
stock’s contribution to the market risk of a well-diversified portfolio is called Q1. ______risk. It can be measured by a metric called the beta coefficient, which calculates the degree to which a stock moves with the movements in the market. Q2. Based on your understanding of the beta coefficient, indicate whether each statement in the following table is true or false: Statement True False Over time, a stock with a beta of 1.0 produces a return that goes up and down with a 1:1 relationship with the return on the market. Beta measures the volatility in st
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 6P
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Concept explainers
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
The beta coefficient
A stock’s contribution to the market risk of a well-diversified portfolio is called Q1. ______risk. It can be measured by a metric called the beta coefficient, which calculates the degree to which a stock moves with the movements in the market.
Q2. Based on your understanding of the beta coefficient, indicate whether each statement in the following table is true or false:
|
Statement
|
True
|
False
|
|
|---|---|---|---|
| Over time, a stock with a beta of 1.0 produces a return that goes up and down with a 1:1 relationship with the return on the market. |
|
|
|
| Beta measures the volatility in stock movements relative to the market. |
|
|
|
| A stock that is more volatile than the market will have a beta of less than 1.0. |
|
|
Q1. Option 1 Unsystematic or Option 2 Relevant.
Please provide true or false answers.
Thank you!
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