Within the context of the capital asset pricing model (CAPM), the risk measure known as beta is often computed by regressing the return of the company's stock against the (A) return on the company's bonds (B) return on the market portfolio (C) change in the gross domestic product (D) change in the consumer price index

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Business

Chanel Vasquez

4 April, 01:52

Within the context of the capital asset pricing model (CAPM), the risk measure known as beta is often computed by regressing the return of the company's stock against the (A) return on the company's bonds (B) return on the market portfolio (C) change in the gross domestic product (D) change in the consumer price index

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Jovan Henderson · Answer 1

B. return on the market portfolio

Explanation:

In capital asset pricing model, beta represent the volatility in the stock price.

An investor will use this information to measure how much a certain company's stock price is changing compared to the average market.

If for example, the company's A stock price constantly change almost daily with 10% rate (could be up and down) while the average companies in the market only change within 5% rate, we can safely say that company is a Riskier investment that shouldn't be included in the portfolio.