Which of the following statements is not true with regard to beta? A) all of the

Question

Which of the following statements is not true with regard to beta?

A) all of the responses are correct with regard to beta.

B) A beta of .75 is interpreted to mean that the stock price would go up or down .75 times as much as the overall market.

C) Beta is an indicator of the price volatility of a stock.

D) Conservative investors tend to seek out lower beta stocks while more aggressive investors who can tolerate more risk tend to seek out higher beta stock.

E) A beta of 1.2 is interpreted to mean that the stock price would go up or down 1.2 times the amount of the overall market.

Explanation / Answer

Option A is correct.

Beta is the measure of systematic risk and it measures the price volatility of the stock. If Beta is one, that means the stock will move in line with the market and change in price would be equal to change in the market index. A lower beta (Beta less than 1) means the stock will move lower than the market. If beta is 0.75, the stock will move 0.75 times of the market.

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