For a levered firm, beta of equity (bE) is equal to:
A) bE = bA
B) bE = bA + (D/E) * [bA - bD]
C) bE = bA + (D/(D + E)) * [bA - bD]
D) None of the above

Question

Quizplus · Accepted Answer

The beta of equity (bE) for a levered firm is calculated using the formula bE = bA + (D/E) * [bA - bD], where bA is the asset beta, bD is the debt beta, D is the market value of debt, and E is the market value of equity. This formula accounts for the financial leverage effect on equity risk.

For a Levered Firm, Beta of Equity (BE) Is Equal