Risk-Free Security Beta and Market Portfolio Beta - Exam CTFA

Risk-Free Security Beta and Market Portfolio Beta

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Question

The risk-free security has a beta equal to, while the market portfolio's beta is equal to:

Answers

Explanations

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A. B. C. D.

C

The beta of a security measures its sensitivity to changes in the returns of the overall market. A beta of 1 indicates that the security's returns move in line with the market, while a beta greater than 1 suggests that the security is more volatile than the market and a beta less than 1 implies that it is less volatile.

The risk-free security has a beta equal to zero since its returns are not affected by changes in the market. The market portfolio's beta is by definition equal to 1 since it represents the overall market, which is used as the benchmark for measuring beta.

Therefore, the correct answer is (C) zero; one.