Risk-free assets have a beta of 0 and the market portfolio has a beta of 1.
In finance, the beta coefficient is the indicator of the systematic risk associated with a given stock investment. Investors calculate beta in order to identify the direction and magnitude of a movement in the stock return given a change in the market return.
Answer and Explanation:
The correct answer is a. True.
The beta coefficient describes the change in the return on a given asset due to a change in the market return. For instance, if an asset or a portfolio has a beta of zero, its return does not respond to changes in the market; hence, such an asset/portfolio can be considered risk-free. If the beta coefficient is equal to one, then the return on an asset or a portfolio is perfectly correlated with the return of a market portfolio. This is a characteristic of portfolios that are constructed in a way that reflects the market.
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fromChapter 12 / Lesson 3
In this lesson, we'll discuss how investors must understand the systematic risk principle in their portfolio. We'll also explain how investors can measure and define the risk of their portfolios using betas.