The Beta of a Firm Is More Likely to Be

question 60

Multiple Choice

The beta of a firm is more likely to be high under which two conditions?

• A)High cyclical business activity and high operating leverage
• B)High cyclical business activity and low operating leverage
• C)Low cyclical business activity and low financial leverage
• D)Low cyclical business activity and low operating leverage
• E)Low operating and financial leverage

Understand the basics of security selection and investment strategies.

Recognize the mechanisms evolved to mitigate potential agency problems.

Comprehend the impact of financial scandals on corporate governance and regulations.

Distinguish between primary and secondary markets, including their significance in the financial system.

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Definitions:

Accounting Basis

The method used to record the financial transactions of a business (e.g., cash basis, accrual basis).

Pay Back

The period of time it takes for an investment to generate enough returns to recover the original investment cost.

Fixed Costs

Expenses that do not vary with the level of production or sales, such as rent or salaries.

Accounting Break-even

The point at which a company's total revenues exactly match its total expenses, indicating no net profit or loss from operations.