Shares with a Beta greater than one indicate:

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BlackTom AI · Accepted Answer

The question asks about shares with a Beta greater than one, so we need to assess what Beta > 1 implies and whether each statement aligns with that concept.
Option a: "a. all of these options." If B > 1 implies higher systematic risk than the market (b), a higher expected return as per CAPM (c), and greater volatility relative to the market (d) in typical finance reasoning, then all listed statements would be correct. We will evaluate the others to confirm.
Option b: "the shares have a higher systematic risk than the market portfolio." Beta measures systematic (market-related) risk, and a Beta greater than 1 indicates that the stock tends to move more than the market when the market moves, hence higher systematic risk. This option is true.
Option c: "the expected return on the shares is higher than the market portfolio." In the CAPM framework, expected return equals the risk-free rate plus Beta times the market risk premium. When Beta > 1, the stock’s expected return exceeds the market’s expected return, assuming a common market risk premium and risk-free rate. Thus this option is true.
Option d: "the shares have greater volatility than the market portfolio." Beta is a measure of sensitivity to market movements and is often interpreted as a proxy for relative volatility to the market. A Beta above 1 implies that the stock is more responsive to market swings, and, on average, its movement amplitude relative to the market is greater, which supports the statement. While total volatility also includes idiosyncratic risk, the implication of Beta > 1 usually entails higher volatility relative to the market. Therefore this option is true.
Taken together, each of options b, c, and d is consistent with Beta > 1, and option a claims that all of these are correct, which would be accurate if  b, c, and d are indeed correct.

MCD2170 - T2 - 2025 Pre-class quiz Week 7

Shares with a Beta greater than one indicate:

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