Which of the following is NOT a potential problem when estimating and using betas,i.e. ,which statement is FALSE?
A) The fact that a security or project may not have a past history that can be used as the basis for calculating beta.
B) Sometimes,during a period when the company is undergoing a change such as toward more leverage or riskier assets,the calculated beta will be drastically different from the "true" or "expected future" beta.
C) The beta of an "average stock," or "the market," can change over time,sometimes drastically.
D) Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed.
E) The beta coefficient of a stock is normally found by regressing past returns on a stock against past market returns.This calculated historical beta may differ from the beta that exists in the future.

Question

Quizplus · Accepted Answer

The statement that the beta of an "average stock," or "the market," can change over time is true and not a problem when estimating and using betas. The beta of the market is defined as 1, and while individual stock betas can change, the market beta remains constant by definition.

Which of the Following Is NOT a Potential Problem When