Question

Which of the following is true for a stock whose returns are more variable than the market's returns? a. The stock's beta will be zero. b. The stock's beta will be less than one. c. The stock's beta will be greater than one. d. The stock's beta will be equal to one.

Answer 1

c. The stock's beta will be greater than one.

Step-by-step explanation:

In order to understand the right answer here, we need to understand what Beta is and what does it represent.

Well, Beta tells about the responsiveness of any stock in comparison with the stock market index. For example, if the index move 100 points positive and the stock price moves $120 positive, this means that the stock is very responsive and has a high beta of more than 1. For stocks that are less response to stock market, their beta is less than 1, while for stocks who move the exact same direction as per the stock market, their beta is said to be equal to 1.

Here, in this question, since the stock return is more variable than the market return, it clearly tells that the Beta of that stock will be greater than one.

Hope this helps, Good Luck.