Which of the following is NOT a potential problem when estimating and using betas, i.e., which statement is FALSE?
A) 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.
B) The beta of an "average stock," or "the market," can change over time, sometimes drastically.
C) Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed.
D) All of the statements above are true.
E) The fact that a security or project may not have a past history that can be used as the basis for calculating beta.

Question

Quizplus · Accepted Answer

The beta of an "average stock," or "the market," is generally considered to be 1 and does not change drastically over time.

Which of the Following Is NOT a Potential Problem When