A risk level where beta equals one is categorized as____________?
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Answer: D. Average risk stock
Explanation
A beta coefficient equal to one indicates that a stock price moves in tandem with the market. Stocks with this exact risk profile experience volatility matching the broader market index benchmark. Financial analysts categorize an equity security with a beta of one as an average risk stock. Beta measures the systematic risk and volatility of an individual stock relative to the market. A beta greater than one signifies higher volatility, while a beta below one indicates stability. The benchmark market index always maintains a baseline beta coefficient of exactly one.
Portfolio managers use beta coefficients to assess systematic risk when constructing diversified asset allocations. Investors seeking market matching returns often purchase index funds composed of average risk stocks. Capital asset pricing models rely on beta values to estimate expected equity returns accurately. Multiple risk stock is an imprecise term that does not describe standard beta coefficient measurements. Varied risk stock fails to specify the exact statistical threshold defined by a beta of one. Total risk stock incorporates both systematic and unsystematic risk rather than market beta alone.
- Subject
- Accounting and Finance
- Category
- Finance
- Topic
- —
- Difficulty
- medium
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