Your firm uses 30% debt financing and 70% equity financing. The beta of the debt is 0.1 and the beta of the equity is 1.4. What is your firm's asset beta?

Question

Quizplus · Accepted Answer

The asset beta (βa) can be calculated using the formula: βa = (E/V) * βe + (D/V) * βd, where E/V is the proportion of equity financing, D/V is the proportion of debt financing, βe is the beta of equity, and βd is the beta of debt. Plugging in the given values: βa = (0.7 * 1.4) + (0.3 * 0.1) = 0.98 + 0.03 = 1.01.

Your Firm Uses 30% Debt Financing and 70% Equity Financing