One of the key issues in estimating foreign project betas is to find firms that are publicly traded that share _____ risk characteristics when compared to the project.

Question

Quizplus · Accepted Answer

In order to estimate foreign project betas, it is important to find publicly traded firms that have similar risk characteristics when compared to the project in question. This allows for a more accurate estimation of the project's beta, as it is assumed to have similar risk factors as those of the selected firms. Choosing firms that are too different, somewhat different, or uncorrelated may lead to biased and inaccurate beta estimates. Therefore, finding firms with similar risk characteristics is the best choice.

One of the Key Issues in Estimating Foreign Project Betas