Which of the Following Statements Is CORRECT

question 146

Multiple Choice

Which of the following statements is CORRECT?

• A) Logically, it is easier to estimate the betas associated with capital budgeting projects than the betas associated with stocks, especially if the projects are closely associated with research and development activities.
• B) The beta of an "average stock," which is also "the market beta," can change over time, sometimes drastically.
• C) If a newly issued stock does not have a past history that can be used for calculating beta, then we should always estimate that its beta will turn out to be 1.0.This is especially true if the company finances with more debt than the average firm.
• D) During a period when a company is undergoing a change such as increasing its use of leverage or taking on riskier projects, the calculated historical beta may be drastically different from the beta that will exist in the future.
• E) If a company with a high beta merges with a low-beta company, the best estimate of the new merged company's beta is 1.0.

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Definitions:

Schizotypal Personality Disorder

A personality disorder characterized by severe social anxiety, thought disorder, paranoid ideation, derealization, transient psychosis, and often unconventional beliefs.

Schizophrenia

A chronic and severe mental disorder that affects how a person thinks, feels, and behaves, characterized by delusions, hallucinations, and impaired cognitive functions.

Personality Disorder

A mental condition marked by long-standing dysfunctional patterns of behavior, thinking, and emotional experience that occur in numerous settings and contrast with cultural norms.

Dramatic

Pertaining to drama or a dramatic style marked by expressive, often exaggerated behavior.