Homework Help: Beta

Posted by Mandy on Saturday, August 19, 2006 at 1:05am.

What does beta mean in terms of overall risk to a company? What are the implications for raising equity capital for a company based on beta?
Would you merge with high beta or low beta companies?

Beta has nothing to do with risk to a company. Beta is a measure of stock price flucatation, as compared to an "average" company. If a particular stock has a high beta, that means the price flucuates. Raising capital equity will be based on seeking out those ventures who thrive on rollercoaster rides in stock value. I am not certain the effect extends further than that. Your last question begs for amplification. If you mean merge businesses which flucuate in stock price with those who dont, the answer is no. I would combine businesses based on business sense..that is, does it make sense product or service wise to merge. Would I merge a steel mill and a grocery chain? probably not.

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