If a firm's beta was calculated as 1.6 in a regression equation, a commonly-used adjustment technique would provide an adjusted beta of
A) less than 0.6 but greater than zero.
B) between 0.6 and 1.0.
C) between 1.0 and 1.6.
D) greater than 1.6.
E) zero or less.

Question

Quizplus · Accepted Answer

The commonly-used adjustment technique for beta, known as the Blume adjustment, moves the beta towards the market average of 1.0. Therefore, an initial beta of 1.6 would be adjusted to a value between 1.0 and 1.6.

If a Firm's Beta Was Calculated as 1