Two investments, X and Y, have beta values of 0.1 and 3.0 respectively. Based on this, we can claim that, relative to the market portfolio,
A) both have more nondiversiﬁable risk than the market portfolio.
B) both have less nondiversiﬁable risk than the market portfolio.
C) X has more nondiversiﬁable risk and Y has less nondiversiﬁable risk than the market portfolio.
D) X has less nondiversiﬁable risk and Y has more nondiversiﬁable risk than the market portfolio.

Question

Quizplus · Accepted Answer

Beta measures an investment's volatility compared to the market as a whole, with the market portfolio having a beta of 1. A beta less than 1 (like 0.1 for investment X) indicates less nondiversifiable risk than the market, while a beta greater than 1 (like 3.0 for investment Y) indicates more nondiversifiable risk than the market.

Two Investments, X and Y, Have Beta Values of 0