Which statement about a stock's beta is correct?
A)If a stock has a beta equal to 1.0, its required rate of return will be unaffected by changes in the market risk premium.
B)A stock with a negative beta must in theory have a negative required rate of return.
C)If a stock's beta doubles, its required rate of return must also double.
D)If a stock's returns are negatively correlated with returns on most other stocks, the stock's beta will be negative.

Question

Quizplus · Accepted Answer

Beta measures an asset's sensitivity to market volatility. A negative beta means the stock's returns move in the opposite direction of the market. Therefore, choice D is correct. The other choices are incorrect because they are either too broad or do not accurately reflect the relationship between a stock's beta and required rate of return.

Which Statement About a Stock's Beta Is Correct