question archive Question 38 Which of the following is a characteristic of beta? A
Question 38 Which of the following is a characteristic of beta? A
Subject:FinancePrice:2.88 Bought22
| Question 38 | |||||||||
| Which of the following is a characteristic of beta? | |||||||||
| A. Beta measures only the volatility of returns on an individual bond relative to a bond market index | |||||||||
| B. Beta is a relative measure of systematic risk | |||||||||
| C. Beta is a relative measure of unsystematic risk | |||||||||
| D. Beta is a measure of total risk | |||||||||
| E. None of the above | |||||||||
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Option B is correct
The systematic risk is measured by beta. Beta measures the riskiness of any asset relative to the market. The systematic risk is undiversifiable by holding many uncorrelated assets in the portfolio and hence it is called market risk.
Option A is incorrect because the volatility of returns is measured by the standard deviation, not beta and beta can be used to measure the systematic risk of any asset not only bonds.
Option C is incorrect because Beta is a relative measure of systematic risk, not unsystematic risk. The unsystematic risk is diversifiable and as such beta cannot be used to measure this risk.
Option D is incorrect because the total risk is measured by the standard deviation of the reutrns. Beta cannot be used to measure the total risk.
