11. Which of the following is NOT a potential problem when estimating and using
ID: 2356620 • Letter: 1
Question
11. Which of the following is NOT a potential problem when estimating and using betas, i.e., which statement is FALSE? A The fact that a security or project may not have a past history that can be used as the basis for calculating beta. B 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. C The beta of an "average stock," or "the market," can change over time, sometimes drastically. D Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed. E All of the statements above are true.Explanation / Answer
B 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.