ECONOMICS
RISK AND RETURN
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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provides a risk-return trade-off in which risk is measured in terms of the market volatility.
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provides a risk-return trade-off in which risk is measured in terms of beta.
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measures risk as the coefficient of variation between security and market rates of return.
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depicts the total risk of a security.
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Detailed explanation-1: -Answer and Explanation: The correct answer is option a. provides a risk-return trade-off in which risk is measured in terms of beta. According to CAPM, Expected Return = Risk-Free Rate + (Beta * Market Risk Premium).
Detailed explanation-2: -Beta is the standard CAPM measure of systematic risk. It gauges the tendency of the return of a security to move in parallel with the return of the stock market as a whole. One way to think of beta is as a gauge of a security’s volatility relative to the market’s volatility.
Detailed explanation-3: -Beta (), primarily used in the capital asset pricing model (CAPM), is a measure of the volatility–or systematic risk–of a security or portfolio compared to the market as a whole.
Detailed explanation-4: -Beta is a statistical measure of the volatility of a stock versus the overall market. It’s generally used as both a measure of systematic risk and a performance measure. The market is described as having a beta of 1. The beta for a stock describes how much the stock’s price moves compared to the market.
Detailed explanation-5: -The beta () of an investment security (i.e., a stock) is a measurement of its volatility of returns relative to the entire market. It is used as a measure of risk and is an integral part of the Capital Asset Pricing Model (CAPM). A company with a higher beta has greater risk and also greater expected returns.