Final answer:
A stock with a Beta of more than one has been more volatile than the overall market. Beta is a measure of relative volatility, not related to dividend payments or inflation adjustments. High Beta stocks may offer high growth potential but come with increased risks.
Step-by-step explanation:
When assessing the behavior of a stock in relation to the market, beta is a crucial measure. A Beta of more than one signifies that a stock's price movements have been more volatile than the overall market. This means that the stock's price has experienced larger fluctuations compared to the benchmark index, which is usually the S&P 500 for the U.S. market. As such, the correct answer to the question is that a stock with a Beta of more than one:
- Has experienced price changes that are more volatile than the overall market.
Contrary to option b, a higher Beta indicates higher volatility, which does not reduce the overall volatility of a stock portfolio. Options c and d are unrelated to the concept of Beta, as Beta measures relative volatility, not dividend payments or inflation adjustments.
Investors need to consider Beta when constructing their portfolios because a higher Beta presents higher potential risk and reward. While the historical pattern shows that stocks generally offer high returns over long periods, they come with volatility risks. Such stocks may not be suitable for those with a low risk tolerance, but may offer substantial growth potential for those willing to accept greater price fluctuations.