If a firm's beta was calculated as 1.35 in a regression equation, a commonly-used adjustment technique would provide an adjusted beta of
A) equal to 1.35.
B) between 0.0 and 1.0.
C) between 1.0 and 1.35.
D) greater than 1.35.
E) zero or less.

Question

Quizplus · Accepted Answer

The commonly-used adjustment technique for beta, known as the Blume's method, adjusts the beta towards 1 (the market beta), meaning if the original beta is above 1, the adjusted beta will be between 1 and the original beta, hence between 1.0 and 1.35 in this case.

If a Firm's Beta Was Calculated as 1