Products & Their RisksQuestion 144 of 398
A stock with a beta of 1.5 is expected to:
a.Move 1.5% for every 1% move in the overall market, making it more volatile than the market
b.Move only half as much as the market
c.Be completely uncorrelated with the market
d.Pay a dividend 1.5 times the market average
Explanation
Beta measures a security's volatility relative to the overall market, which has a beta of 1.0. A beta of 1.5 means the stock tends to move 1.5% for each 1% move in the market, so it is more volatile and carries more systematic risk. A beta below 1.0 indicates lower volatility than the market.
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