Beta of firm and idiosyncratic risk [10 points] The stock price of Beavers, a logging firm, tends to increase by 50% on average when the economy is booming. When the economy is weak, it goes down by 30%. At the same time, the market portfolio tends to increase by 57% in booms and decrease by 35% during periods of weak economy .

a. What is the beta of the firm? How would you interpret it?

b. What is the beta of the firm if it bears only idiosyncratic, firm-specific risk?

Answer rating: 100% (QA)

SOLUTION Let s solve the above questions as follows Formula for B calcul... View the full answer