A considerable scattering in the plot of points representing the historic returns of a stock versus the returns on the market reflects the:
A) high beta of the stock.
B) unique risk of the stock.
C) changes in market risk premium over time.
D)current underpricing of the stock.

Question

Quizplus · Accepted Answer

A considerable scattering in the plot of points representing the historic returns of a stock versus the returns on the market refers to the stock's unique risk, which cannot be diversified away. High beta (A) refers to the degree of sensitivity of a stock's return to market returns. Changes in market risk premium (C) would cause changes in expected returns for all stocks, not just one specific stock. Current underpricing of the stock (D) is not related to the scatter in the plot of returns.

A Considerable Scattering in the Plot of Points Representing the Historic