Which one of the following statements is correct?
A) A beta of 1.2 indicates that a security has less risk than the overall market.
B) Treasury bills have a beta of zero.
C) A stock with a beta of 1.4 has less systematic risk than a stock with a beta of .9.
D) The risk premium associated with a stock will decrease as the beta of the stock increases.
E) The beta of a diversiﬁed portfolio will approach zero as the number of stocks in the portfolio is increased.

Question

Quizplus · Accepted Answer

Treasury bills have a beta of zero, indicating that they have no systematic risk and are considered risk-free assets. A beta of greater than 1 indicates more systematic risk than the market, while a beta of less than 1 indicates less systematic risk than the market. The risk premium associated with a stock will increase as the beta of the stock increases, as investors demand higher returns for taking on higher levels of systematic risk. The beta of a diversified portfolio will approach the market beta (which is generally considered to be 1) as the number of stocks in the portfolio is increased, not zero.

Which One of the Following Statements Is Correct