You are a fund manager and have a portfolio of high risk stocks. The beta of...

You are a fund manager and have a portfolio of high risk stocks. The beta of a firm is more likely to be high under which two conditions?

A. high cylical busniess activity and high operating leverage

B. high cylical business activity and low operating leverage

C. low cylical business activity and low financial leverage

D. low cylical business activity and low operating leverage

E. low financial leverage and low operating leverage

Solutions

Expert Solution

Final answer

A. high cyclical business activity and high operating leverage

Explanation

High cyclical business activity means business prospects are highly correlating with external industrial cycle that consists of economic prosperity and adding to this risk if there is high operating leverage, its a situation of having high beta value.

jeff jeffy answered 1 year ago

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