Ace the CMA 2025 Challenge – Unlock Your Accounting Superpowers!

Question: 1 / 430

How does a stock with a beta of 1.0 behave relative to the overall market?

It moves in the opposite direction of the market

It does not correlate with market movements

It tends to move in the same direction and degree as the market

A stock with a beta of 1.0 is considered to have a volatility that is equal to the overall market's volatility. This means that when the market experiences a movement, whether it be an increase or a decrease, the stock with a beta of 1.0 tends to move in the same direction and degree as the market. For instance, if the market goes up by 1%, the stock is also expected to go up by approximately 1%. Conversely, if the market falls by 1%, the stock is likely to decrease by roughly the same percentage.

The concept of beta is used to measure the sensitivity of a stock's returns in relation to the market. A beta greater than 1 indicates greater volatility than the market, while a beta less than 1 suggests that the stock is less volatile. Therefore, a beta of 1 signifies a direct correlation with market movements, which is why this choice accurately depicts the behavior of a stock with that specific beta value.

Get further explanation with Examzify DeepDiveBeta

It is less volatile than the market

Next Question

Report this question

Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy