Question

Beta is the measure of market risk. Look at the businesses listed below and see if you can identify one that could very likely have a relatively high total risk but a lowbeta. Explain your reasoning.

Beta is the measure of market risk. Look at the businesses listed below and see if you can identify one that could very likely have a relatively high total risk but a low beta. Explain your reasoning.

a. The manufacturer of diamond-encrusted dog collars.

b. A company that specializes in finding and salvaging old shipwrecks from the Age of Discovery (the 1500s and 1600s).

c. A casino

Answer 1

Beta is the mesure of risk which indicate relative performance of the stock with benchmark.

If stock moves more in the same direction with the benchmak Beta is >1 .

If stock moves opposit the direction of the market beta is negetive.

If the stock moves less but the direction is same as the benchmark then Beta is less then 1.

It does not take bussiness inherent risk into account

b. A company that specializes in finding and salvaging old shipwrecks from the Age of Discovery (the 1500s and 1600s).

Becouse in optoin A it was regular bussiness of making dog coller.

In option C it was a casino which never loses overall as probebility helps them.

however in Option B the compnie find and salvaging old shipwerecks from age of discovery there is no degree of certanity we can use to asure about if they will suscced .

Hence option B is the most risky bussienss and it probebiliy have low beta if in past it had moved with the market.