The expected return of a zero-beta security is the risk-free rate. So, the correct answer is b. The risk-free rate.

Here's why:

Beta measures the sensitivity of a security's returns to the overall market returns. A beta of 1 indicates that the security's price will move with the market. A beta less than 1 indicates the security will be less volatile than the market. A beta greater than 1 indicates the security's price will be more volatile than the market.

A zero-beta security, therefore, is not sensitive to the systematic risk (market risk) at all. Its expected return is not affected by movements in the market. Therefore, the return on a zero-beta security is the risk-free rate, which is the return that an investor would expect from a risk-free investment, such as a U.S. Treasury bond.

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The expected return of a zero-beta security is the risk-free rate. So, the correct answer is b. The risk-free rate.

Here's why:

Beta measures the sensitivity of a security's returns to the overall market returns. A beta of 1 indicates that the security's price will move with the market. A beta less than 1 indicates the security will be less volatile than the market. A beta greater than 1 indicates the security's price will be more volatile than the market.

A zero-beta security, therefore, is not sensitive to the systematic risk (market risk) at all. Its expected return is not affected by movements in the market. Therefore, the return on a zero-beta security is the risk-free rate, which is the return that an investor would expect from a risk-free investment, such as a U.S. Treasury bond.

Knowee AI · Accepted Answer

The expected return of a zero-beta security is the risk-free rate. So, the correct answer is b. The risk-free rate.

Here's why:

Beta measures the sensitivity of a security's returns to the overall market returns. A beta of 1 indicates that the security's price will move with the market. A beta less than 1 indicates the security will be less volatile than the market. A beta greater than 1 indicates the security's price will be more volatile than the market.

A zero-beta security, therefore, is not sensitive to the systematic risk (market risk) at all. Its expected return is not affected by movements in the market. Therefore, the return on a zero-beta security is the risk-free rate, which is the return that an investor would expect from a risk-free investment, such as a U.S. Treasury bond.

What is the expected return of a zero-beta security?a. A negative rate of return.b. The risk-free rate.c. The market rate of return.d. Zero rate of return.e. A return higher than the risk-free rate.

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