Detailed Answer
(b) The requirement is to identify the measure of the
risk of an investment relative to other investments in general.
Answer (b) is correct because the beta coefficient of an individual
stock is the correlation between the stock’s price and the price of
the overall market. As an example, if the market goes up 5% and
the individual stock’s price, on average, goes up 10%, the stock’s
beta coefficient is 2.0. Answer (a) is incorrect because the coefficient
of variation compares the risk of the stock to its expected
return. Answer (c) is incorrect because the standard deviation
measures the dispersion of the individual stock’s returns. Answer
(d) is incorrect because the expected return does not measure
risk.