Question

When using the Capital Asset Pricing Model, what specific value is assigned to the beta of a portfolio that holds the exact same assets as the total market?

Accepted Answer

When you use the Capital Asset Pricing Model, which is just a way to figure out the expected return of an investment, the beta of a market portfolio is exactly 1. Beta is a number that measures how much a stock or a group of stocks moves compared to the whole market. Think of the market as a big ship and your investment as a person standing on the deck; if the ship rocks, the person rocks with it. Because a portfolio that holds every asset in the market is the market itself, it moves exactly in sync with the market. A beta of 1 means that for every one percent the market goes up or down, your portfolio also moves by exactly one percent. Any number higher than 1 would mean your investment is wilder and riskier than the market, while any number lower than 1 would mean it is steadier and safer.

When using the Capital Asset Pricing Model, what specific value is assigned to the beta of a portfolio that holds the exact same assets as the total market?

When you use the Capital Asset Pricing Model, which is just a way to figure out the expected return of an investment, the beta of a market portfolio is exactly 1. Beta is a number that measures how much a stock or a group of stocks moves co....

Community Answers

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When using the Capital Asset Pricing Model, what specific value is assigned to the beta of a portfolio that holds the exact same assets as the total market?

When you use the Capital Asset Pricing Model, which is just a way to figure out the expected return of an investment, the beta of a market portfolio is exactly 1. Beta is a number that measures how much a stock or a group of stocks moves co....

Community Answers