The chief financial officer of Adobe Systems, a growing software manufacturing firm, has approached you for some advice regarding the beta of his company. He subscribes to a service which estimates Adobe System’s beta each year, and he has noticed that the beta estimates have gone down every year since 1991 – 2.35 in 1991 to 1.40 in 1995. He would like the answers to the following questions –
a. Is this decline in beta unusual for a growing firm?
b. Why would the beta decline over time?
c. Is the beta likely to keep decreasing over time?