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Statement True False Stock A's beta is 1.0; this means that the stock moves in the same direction and magnitude as the market. @ O A stock that is more volatile than the market will have a beta of more than 1.0. @ O Higher-beta stocks are expected to have lower required returns. O @ Points: mmm 1/ 1 Explanation: Close Explanation A A well-diversified portfolio will exhibit a minimum of unsystematic, or company-specific risk. The portfolio's remaining risk represents market risk, which cannot be diversified away with addition of more assets. Each stock's contribution to market risk is termed relevant risk. The beta coefficient is a statistical measure of the stock's relation with the market—that is, the extent to which the return on a stock rises and falls with the changes in the market's return. Analysts generally use historical data to calculate the beta and use it as an estimate of the stock's volatility relative to the market. An average stock is said to have a beta of 1.0, which means that on average it moves in the same direction and with the same magnitude as movements in the market. This means that the average stock is positively correlated with the market. If a stock has a beta that is greater than 1.0, it means that the stock's positive and negative returns will be greater than the market's returns. Investors should expect a higher rate of return from stocks with higher betas.
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