What does the "beta" of an asset measure?
A) how the nondiversiﬁable risk compares with diversiﬁable risk for an asset
B) how the expected return compares with the diversiﬁable risk of a given asset
C) how the expected return compares with the nondiversiﬁable risk of the market portfolio
D) how the nondiversiﬁable risk of a given asset compares with that of the market portfolio

Question

Quizplus · Accepted Answer

The beta of an asset measures how the nondiversifiable risk of the asset compares with that of the market portfolio. So, option D is the correct answer. Option A is incorrect because it talks about comparing diversifiable risk and nondiversifiable risk for an asset. Option B is also incorrect because it compares the expected return with diversifiable risk, which is not what beta measures. Option C compares the expected return with nondiversifiable risk of the market portfolio which is not what beta measures.

What Does the "Beta" of an Asset Measure