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Essay / Research Paper Abstract
The beta is seen as an indicator of risk, measuring volatility against the market as a whole. This 5 page paper examines the different influences that will impact on the calculation of the beta and consider ways that a company may influence the beta. The bibliography cites 4 sources.
Page Count:
5 pages (~225 words per page)
File: TS14_TEbeta01.rtf
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Unformatted sample text from the term paper:
is known that the prices of shares will go up and down; the beta is a measure of how the price of a stock moves in comparison to the market.
The market as a whole has a beta of 1, where the stock price of a company mores with a level of volatility greater than the market, then the beta
is greater than one, meaning it is seen as more risky. Where the volatility of a share price is less than the market the stock would be seen as less
risky. To put this into context when the beta is 1.5, this indicates a 1.5% change in the specific stock price/return for every 1% change in the stock market
price/return (Brealey and Myers, 2000). The use of the beta measurement may be flawed, there has been a great deal of decision over the usefulness of the beta and the
way it may e improved upon. However, as long as the measure and its influences are understood it may be used effectively and with an understanding of the influences it
may be partially managed by the company. By understanding these the company may be able to manage them which can benefit the company with less pressure in the way the
share prices poerfoman and the fear of a fall, especially if management are paid with business attached to the stock market performance. It is also with reference to the beta
that the way the cost of capital is calculated and influencing in the different financing decisions. To understand the influences in
the beta we need to look at the types of risk in the market that can impact on stock values. There are many influences and risks, these can be divided
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