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 the options

Question

Quizplus · Accepted Answer

The equity beta (b_E) of a levered firm is calculated as b_E = b_A + (D/E)× [b_A - b_D], where b_A is the beta of assets, b_D is the beta of debt, D is the market value of debt, and E is the market value of equity.

For a Levered Firm Where BA = Beta of Assets

For a Levered Firm Where B_A = Beta of Assets