Which of the following statements is true?
A) A stock with a beta less than zero has no exposure to systematic risk.
B) A stock with a beta greater than 1.0 has lower nondiversifiable risk than a stock with a beta of 1.0.
C) A stock with a beta less than 1.0 has lower nondiversifiable risk than a stock with a beta of 1.0.
D) A stock with a beta less than 1.0 has higher nondiversifiable risk than a stock with a beta of 1.0.

Question

Quizplus · Accepted Answer

A stock with a beta less than 1.0 means that it is less volatile than the overall market, and therefore has lower nondiversifiable risk than a stock with a beta of 1.0. A beta greater than 1.0 indicates that the stock is more volatile than the market, and therefore has higher nondiversifiable risk. A stock with a beta less than zero is theoretically possible, but it would indicate an inverse relationship with the market, which is not a typical scenario.

Which of the Following Statements Is True