An Increase in the Beta of a Firm Indicates

question 17

Multiple Choice

An increase in the beta of a firm indicates , and, all else being the same, results in .

• A) an increase in risk; a higher required rate of return and hence a lower share price.
• B) a decrease in risk; a higher required rate of return and hence a lower share price.
• C) a decrease in risk; a lower required rate of return and hence a higher share price.
• D) an increase in risk; a lower required rate of return and hence a higher share price.

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Definitions:

Insurance

A contract by which an insurance company, the insurer, promises to pay a sum of money or give something of value to another, either the insured or the beneficiary, to compensate for a specified loss.

Concurrent Property Ownership

Ownership of property by two or more parties at the same time, where each party has an undivided interest in the whole property.

Subrogation

The legal process by which one party steps into the shoes of another party, to pursue their rights against a third party, usually in insurance claims.

Indemnity

A contractual obligation of one party to compensate the loss incurred by another party due to the acts of the indemnitor or any other party.