Beta and Market Risk

This question tests whether you understand beta as a measure of systematic risk, which is central to valuation and cost of capital work in investment banking. Candidates need to know that beta is about a stock’s sensitivity to broad market moves, not company-specific risk, and that it helps explain how a security behaves when the market rises or falls. Interviewers ask this because beta feeds directly into frameworks such as the CAPM and therefore into discount rates, valuation assumptions, and comparisons across businesses. It also checks whether you can interpret different beta levels in plain English and connect risk to expected return behavior.