Question

An industry is likely to have a low beta if the: Both stream of revenues is...

An industry is likely to have a low beta if the:

Both stream of revenues is stable and less volatile than the market; and market for its goods is unaffected by the market cycle.

market for its goods is unaffected by the market cycle.

economy is in a recession.

stream of revenues is stable and less volatile than the market.

Both stream of revenues is stable and less volatile than the market; and economy is in a recession.

Homework Answers

Answer #1

The correct answer is the first option saying: Both stream of revenues is stable and less volatile than the market; and market for its goods is unaffected by the market cycle.

If the firm has business activity that is highly cyclical, it will be subjected to higher variability and volatility. Further if stream of revenues are not stable it will have higher operating leverage. Beta is a measure of lack of stability. It's a measure of variability, fluctuation and instability. Hence an industry will low beta will have stable stream of revenues that remain unaffected by market cycle.

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