Question

Match the risk profile with the company that embodies it best!

-       A.       B.       C.       D.    Beta=3       -       A.       B.       C.       D.    Beta=0.3       -       A.       B.       C.       D.    High idiosyncratic risk with high or low beta       -       A.       B.       C.       D.    Negative beta

A. Manufacturer of everyday dairy products B. Biotech company awaiting FDA approval for their first drug C. Bankruptcy advisory services D. Jewelry retail chain that does best during economic expansion

Answer 1

Beta =3  Jewelry retail chain that does best during economic expansion This is because they are highly correlated with performance of the market.

Beta =0.3  Manufacturer of everyday dairy products.Dairy Products are sold even during recession and hence are less correlated to market returns.

High idiosyncratic risk with high or low beta .  Biotech company awaiting FDA approval for their first drug. This is because they have high firm specific risk.

Negative Beta Bankruptcy advisory services. This is because during recession their requirement is more.