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.

Question

Quizplus · Accepted Answer

The commonly-used adjustment technique is to "de-lever" the beta using the firm's capital structure. This results in an adjusted beta that reflects the risk of the firm's assets without the influence of leverage. Therefore, the adjusted beta is likely to be lower than the unadjusted beta. A beta between 1.0 and 1.35 suggests that the firm is still more risky than the market, but less risky than if the firm's leverage was not taken into consideration.

If a Firm's Beta Was Calculated as 1