If a firm's beta was calculated as 0.8 in a regression equation, a commonly-used adjustment technique would provide an adjusted beta of
A)less than 0.8 but greater than zero.
B)between 1.0 and 1.8.
C)between 0.8 and 1.0.
D)greater than 1.8.

Question

Quizplus · Accepted Answer

A commonly-used adjustment technique is to adjust the beta to reflect the market's current level of risk. This is typically done by multiplying the beta by a factor known as the "market risk premium" which represents the excess return that investors demand for taking on market risk. The market risk premium is typically estimated to be around 5-6%. Multiplying the beta of 0.8 by a market risk premium of 5-6% would result in an adjusted beta range between 0.8 and 1.0.

If a Firm's Beta Was Calculated as 0