Which of the Following Is NOT a Potential Problem When

question 85

Multiple Choice

Which of the following is NOT a potential problem when estimating and using betas, i.e., which statement is FALSE?

• A) 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.
• B) The beta of an "average stock," or "the market," can change over time, sometimes drastically.
• C) Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed.
• D) All of the statements above are true.
• E) The fact that a security or project may not have a past history that can be used as the basis for calculating beta.

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Definitions:

Unrealistically Optimistic

The tendency to hold excessively positive expectations for one's self despite evidence to the contrary.

Psychological State

A state of mind or a mental condition at a specific time, influenced by feelings, thoughts, and behavior patterns.

Mania

A mental state characterized by excessive excitement, energy, euphoria, or irritability, often found in bipolar disorder.

Post-traumatic Stress Disorder

A mental health condition triggered by experiencing or witnessing a terrifying event, characterized by flashbacks, nightmares, and severe anxiety.