Beta of the common stock of a levered firm


Question 1: The cost of equity for Ryan Corporation is 8.4%. If the expected return on the market is 10% and the risk-free rate is 5%, then the equity beta is ___

Question 2. The beta of a firm is more likely to be high under what two conditions?

  • high cyclical business activity and low operating leverage
  • high cyclical business activity and high operating leverage
  • low cyclical business activity and low financial leverage.
  • low cyclical business activity and low operating leverage
  • None of the above.

Question 3. Beta is useful in the calculation of the

  • company's variance.
  • company's discount rate.
  • company's standard deviation.
  • unsystematic risk.
  • company's market rate.

Question 4. Style portfolios are characterized by

  • their stock attributes; P/Es less than the market P/E are value funds.
  • their systematic factors, higher systematic factors are benchmark portfolios.
  • their stock attributes; higher stock attribute factors are benchmark portfolios.
  • their systematic factors, P/Es greater than the market are value portfolios.
  • There is no difference between systematic factors and stock attributes.

Question 5. Comparing two otherwise equal firms, the beta of the common stock of a levered firm is ____________ than the beta of the common stock of an unlevered firm.

  • equal to
  • significantly less
  • slightly less
  • greater
  • None of the above.

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Finance Basics: Beta of the common stock of a levered firm
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