Respuesta :
How can a positive relationship between the expected return on a security and its beta be justified Because the difference between the return on the market and the risk-free rate is likely to be positive.
Market is defined as a regular gathering of people for the purchase and sale of provisions, livestock, and other commodities.
A positive relationship between the expected return on a security and its beta be justified since the difference between them is likely to be positive. In other words, it is the stock's sensitivity to market risk. For instance, if a company's beta is equal to 1.5 the security has 150% of the volatility of the market average. However, if the beta is equal to 1, the expected return on a security is equal to the average market return.
Therefore, the correct option is difference between the return on the market and the risk-free rate is likely to be positive.
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