One asset has a beta of 1.5 and another asset has a beta of 0.75. The difference in beta means that the asset with a beta of 0.75 has
A) 75 percent less nondiversiﬁable risk than the asset with a beta of 1.5.
B) 75 percent more nondiversiﬁable risk than the asset with a beta of 1.5.
C) twice as much nondiversiﬁable risk as the asset with a beta of 1.5.
D) one-half as much nondiversiﬁable risk as the asset with a beta of 1.5.

Question

Quizplus · Accepted Answer

Beta measures an asset's nondiversifiable risk relative to the market. A beta of 1.5 indicates 50% more nondiversifiable risk than the market, while a beta of 0.75 indicates 25% less risk than the market. Therefore, the asset with a beta of 0.75 has half as much nondiversifiable risk as the asset with a beta of 1.5.

One Asset Has a Beta of 1