Series 7 Exam Question 110: Answer and Explanation

Question: 110

ABC common stock has a beta of 1.4, which means

• A. the stock is more volatile than the market
• B. the stock is less volatile than the market
• C. the stock is equally volatile as the market
• D. the stock is counter cyclical

Correct Answer: A

Explanation:

A. Beta measures the volatility of a stock in relation to the market. A stock with a beta of 1 is equally volatile as the market. A stock with a beta higher than 1 (as it is in this case) is more volatile than the market. Stocks with a high beta tend to decrease in value more than the market when it's bearish and increase in value more than the market when it's bullish.