The variable beta
A)measures the degree of liquidity in a portfolio.
B)is the responsiveness of a stock's expected return to changes in the value of the complete market portfolio.
C)measures the degree of idiosyncratic risk in the complete market portfolio.
D)is always less for an individual portfolio than for the complete market portfolio.

Question

Quizplus · Accepted Answer

Beta is the measure of a stock's or portfolio's sensitivity to systematic risks, which means how much a stock's expected return responds to changes in the market. Therefore, option B is the correct choice. Option A is incorrect because beta is not related to liquidity. Option C is incorrect because idiosyncratic risk is related to diversifiable risks, whereas beta measures non-diversifiable risks. Option D is incorrect because individual portfolios can have beta values greater than or equal to the market portfolio.

The Variable Beta