The beta of Apple stock has been estimated as 2.3 using regression analysis on a sample of historical returns.A commonly used adjustment technique would provide an adjusted beta of ___________.
A)2.20
B)1.87
C)2.13
D)1.66
E)none of the above

Question

Quizplus · Accepted Answer

The commonly used adjustment technique is the Blume adjustment, which adjusts the raw beta towards the market beta of 1. The formula is: Adjusted Beta = (2/3 * Raw Beta) + (1/3 * 1). For a raw beta of 2.3, the adjusted beta is (2/3 * 2.3) + (1/3 * 1) = 1.87.

The Beta of Apple Stock Has Been Estimated as 2