Finance: CAPM and beta

Do you think the following companies would have a high, low, or average beta? Explain your answer using references from the background readings and your knowledge of CAPM and beta:

a. The ACME Umbrella company’s stock goes up a lot when it rains but goes down when it is sunny. Nothing else but the weather seems to impact ACME’s stock price.

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ANSWER:

☐High Beta

☐Low Beta

☐Average Beta

Explain:

 

b. Vultures, Inc., specializes in buying assets of bankrupt companies at a discount. Vultures’ stock price seems to go up whenever other companies are doing poorly and going bankrupt but goes down when other companies are doing well, and they have few bankrupt companies to prey on.

ANSWER:

☐High Beta

☐Low Beta

☐Average Beta

Explain:

 

c. Unoriginal, Inc., can never decide what products they want to focus on, so they make many different products in several different industries. They also invest much of their profits into 100 or so other companies that are listed on the stock exchange.

ANSWER:

☐High Beta

☐Low Beta

☐Average Beta

Explain: