A stock with a beta of zero would be expected to have a rate of return equal to:
A)the prime rate.
B)the average AAA bond.
C)the risk-free rate.
D)the market rate.
E)None of the above.

Question

Quizplus · Accepted Answer

A stock with a beta of zero would be expected to have no systematic risk and only face unsystematic risks. As a result, its rate of return should be equal to the risk-free rate. Therefore, option C is the best choice. Options A and B are not correct because they do not necessarily reflect the risk-free rate. Option D is also incorrect because the market rate is always subject to systematic risks.

A Stock with a Beta of Zero Would Be Expected