How can a beta of 2.0 be interpreted? 1) The stock is half as risky as holding a

Question

How can a beta of 2.0 be interpreted?

1) The stock is half as risky as holding a diversified portfolio.

2) The stock is twice as risky as holding a diversified portfolio.

3) The stock is as risky as holding a diversified portfolio.

4) The beta says nothing about the stock’s risk.

1) The stock is half as risky as holding a diversified portfolio.

2) The stock is twice as risky as holding a diversified portfolio.

3) The stock is as risky as holding a diversified portfolio.

4) The beta says nothing about the stock’s risk.

Explanation / Answer

2) The stock is twice as risky as holding a diversified portfolio

market beta is 1 because it is a well diversified portfolio. Since stock has 2 beta its risk is twice

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