For a levered firm where b_A = beta of assets and b_D = beta of debt, the equity beta (b_E)equals A)b_E = b_A B)b_E = b_A + (D/E)× [b_A - b_D] C)b_E = b_A + (D/(D +E))× [b_A − b_D] D)None of these options.

Question

Quizplus · Accepted Answer

The equity beta (βE) of a levered firm can be calculated using the formula: βE = βA + (D/E)× [βA - βD], where βA is the beta of assets, βD is the beta of debt, and D/E is the debt-to-equity ratio. This formula accounts for the financial leverage effect on the equity beta.

For a Levered Firm Where BA = Beta of Assets

For a Levered Firm Where B_A = Beta of Assets