Which of the following makes this a true statement? Ideally,when searching for a beta for a new line of business:
A) one could find other firms engaged in the proposed new line of business and use their betas as proxies to estimate the project's risk.
B) one would like to find at least three or four pure-play proxies.
C) two (or even one) proxies might represent a suitable sample if their line of business resembles the proposed new project closely enough.
D) All the answers make this a true statement.

Question

Quizplus · Accepted Answer

When searching for a beta for a new line of business, it is ideal to find other firms engaged in the proposed new line of business and use their betas as proxies (A), to find at least three or four pure-play proxies for a more accurate estimate (B), and in some cases, even one or two closely resembling proxies might be sufficient if they closely match the proposed project's line of business (C). Therefore, all the provided options contribute to making a true statement about the ideal approach to finding a beta for a new line of business.

Which of the Following Makes This a True Statement? Ideally,when