Which of the Following Statements Is Correct

question 121

Multiple Choice

Which of the following statements is correct?

• A)If a company with a high-beta stock merges with a low-beta company, the best estimate of the new merged company's beta is 1.0.
• B)The beta of an "average stock," or "the market," can change over time, sometimes drastically.
• C)If a newly issued stock does not have a past history that can be used as a basis 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 than the "true" or "expected future" beta.

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Definitions:

Substitution Effect

The change in consumption resulting from a change in the price of a good, causing consumers to replace more expensive items with less expensive ones.

Labor-Supply Curve

A graphical representation that shows the relationship between the wage rate and the quantity of labor workers are willing to supply.

Price of Leisure

Refers to the opportunity cost of time spent on non-work activities, measured by the income foregone by not working.

Wage Rate

The amount of money paid to an employee for work performed, typically expressed per hour or unit of work.