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Q1) As a financial manager, you found that the capital market is very risky and volatile. As we know that the firm's Beta () measures
Q1) As a financial manager, you found that the capital market is very risky and volatile. As we know that the firm's Beta () measures the volatility, or systematic risk, of a security, as it compares to the broader market. The higher the firm's Beta, the higher the security's risk, as it compares to the broader market. However, the shareholders of your firm heard about another firm with negative Beta, and they are confused now. The shareholders of your firm would like to know if a firm can have a negative beta. If yes, what would the expected return on such a firm be? Why? Please explain your reasoning by providing a quality argument. (4 Points) Q1) As a financial manager, you found that the capital market is very risky and volatile. As we know that the firm's Beta () measures the volatility, or systematic risk, of a security, as it compares to the broader market. The higher the firm's Beta, the higher the security's risk, as it compares to the broader market. However, the shareholders of your firm heard about another firm with negative Beta, and they are confused now. The shareholders of your firm would like to know if a firm can have a negative beta. If yes, what would the expected return on such a firm be? Why? Please explain your reasoning by providing a quality argument. (4 Points)
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