From the course: Corporate Finance Foundations
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Beta: Examples
From the course: Corporate Finance Foundations
Beta: Examples
- Let's discuss some real beta examples. Here you see a list of companies with which we are all familiar and their associated betas. Let's consider Ford Motor Company. If you are fearful of your job, if the economy is going down and you are fearful of a recession, then you're not going to run out and buy a new car. So when there is a little downturn in the economy, Ford Motor sales go down substantially. When the economy tightens up, big construction projects grind to a halt. So Caterpillar, the big construction equipment company, sees sales go down when the economy takes a turn for the worst. But when the economy goes back up, lots of people want to buy cars. There's been a pin up demand, so Ford Motor sales go way up. The same is true with construction equipment. When the economy goes up a little, Caterpillar stock price goes up a lot. That relationship is reflected in a high beta. Consider Bank of America. Banks, especially large banks, Bank of America banks, especially large…
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