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  • 24-07-2020
  • Business
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A security held in a well-diversified portfolio that has a beta of zero in a one-factor model will have an expected return of:

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tutordamola
tutordamola tutordamola
  • 25-07-2020

Answer:

The answer is risk free rate.

Explanation:

Beta is a risk arising from systematic risk or market risk.

A portfolio with a beta of zero would have the same expected return as the risk-free rate. Such a portfolio would have zero correlation with market movements.

Market risk cannot be diversified. Examples of zero beta assets are cash and US treasury bill.

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