Which of the Following Methods Involves Calculating an Average Beta

question 32

Multiple Choice

Which of the following methods involves calculating an average beta for firms in a similar business and then applying that beta to determine the beta of its own project?

• A) Sensitivity Analysis
• B) Pure play method
• C) Accounting beta method
• D) Capital asset pricing model (CAPM) method
• E) Net present value (NPV) analysis

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Definitions:

Government Bond Rate

The interest rate offered by government securities, which is often seen as a risk-free benchmark against which other investment yields are measured.

Rate Of Inflation

The magnitude of acceleration in average prices for goods and services, which causes a downfall in the ability to procure.

Treasury Bills

Short-term government securities with maturity periods of one year or less, sold to finance the national debt.