Question 1 Company 1 has been listed on the London Stock Exchange for 10 years. It supplies catering to airlines in the UK and EU. For the last three years, Company 1's business suffered a nose-dive due to the world-wide pandemic and reduced flights in the UK and EU. The Company's directors decided to acquire a fully owned subsidiary, which manufactures Rapid Antigen Tests two years ago as part of the diversification strategy. A friend who recently studies the Capital Asset Pricing Model wants to estimate the beta for Company 1 using an ordinary least square approach on monthly share prices of Company 1 for the last 5 years onto the index prices of FTSE 100. Required Identify 5 practical issues with your friend's approach in estimating beta for Company 1. Clearly explain any potential measurement errors and suggest ways which you may improve the accuracy of the estimated beta. (25 marks)

Question 1 Company 1 has been listed on the London Stock Exchange for 10 years. It supplies catering to airlines in the UK and EU. For the last three years, Company 1's business suffered a nose-dive due to the world-wide pandemic and reduced flights in the UK and EU. The Company's directors decided to acquire a fully owned subsidiary, which manufactures Rapid Antigen Tests two years ago as part of the diversification strategy. A friend who recently studies the Capital Asset Pricing Model wants to estimate the beta for Company 1 using an ordinary least square approach on monthly share prices of Company 1 for the last 5 years onto the index prices of FTSE 100. Required Identify 5 practical issues with your friend's approach in estimating beta for Company 1 . Clearly explain any potential measurement errors and suggest ways which you may improve the accuracy of the estimated beta. (25 marks)