1)A manager who tries to minimize the Beta his/her company is essentially also t
ID: 2647893 • Letter: 1
Question
1)A manager who tries to minimize the Beta his/her company is essentially also trying to maximize the value of the company.
True
False
2) If the cost of equity of capital is positively correlated with a firms beta then which firm has a higher cost of equity ( use yahoo finance as your source for beta
General Mills
Kraft
Apple
Microsoft
3) Diversifying a portfolio across various sectors and industries might do more than one of the following. However this diversification much do which of the following
- increase the expected risk premium
-reduce the beta of the portfolio to zero
- increase the risk premium
-reduce the portfolios systematic risk level
-reduce the portfolios unique risk
4) Jet Setters has a cost of equity of 17.8 percent. The market risk premium is 10.2 percent and the risk free rate is 4.4 percent. The company is acquiring a competitor, which will increase the company
Explanation / Answer
(1) A manager who tries to minimize the Beta his/her company is essentially also trying to maximize the value of the company.
Answer : False
Beta is non diversifiable risk. So A manager who tries to minimize the beta may not necessarily result in maximization of returns and to maximize value of the company, manager also needs to maximize returns. So his/her company is not essentially also trying to maximize the value of the company.
(2) If the cost of equity capital is positively correlated with a firm
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