SIE practice questionhardRisk — Beta
A stock with a beta of 1.5 would be expected to:
- AMove 50% more than the overall market in the same direction✓ Correct answer
- BNot be correlated with market movements
- CMove 50% less than the overall market
- DMove in the opposite direction of the market
Explanation
Why A — Move 50% more than the overall market in the same direction
Beta measures a security's sensitivity to market movements. A beta of 1.5 means the stock is expected to move 1.5 times (50% more than) the market. If the market rises 10%, this stock would be expected to rise 15%. If the market falls 10%, this stock would be expected to fall 15%. Beta of 1.0 = market average. Beta < 1.0 = less volatile. Negative beta = moves opposite to market.
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