Many investors look at the beta coefficients provided by investment advisors based on least squares estimates of the model R_i = α + βR_M + ε, where R_i is the rate of return on a stock and RM is the return on a market average, such as the S&P 500. Explain why you either agree or disagree with this advice:

a. “A stock with a low beta is safer than a high-beta stock, because the lower the beta is, the less the stock’s price fluctuates.”

b. “If the market was expected to rise, an investor might increase the R² of the portfolio.

If the market was expected to decline, a portfolio with a low R² would be appropriate.”