The Tenplen Corporation has an asset beta of 1.05 and a debt beta of .8. The debt portion of the capital structure in market terms is .375. Tenplen has a zero tax rate. What is the equity beta?
A) .80.
B) .90.
C) 1.05.
D) 1.20.
E) .40.

Question

Quizplus · Accepted Answer

The correct answer is A because the equity beta is calculated as the asset beta multiplied by the equity portion of the capital structure, which is 1 - the debt portion. In this case, the equity portion is 1 - .375 = .625, so the equity beta is 1.05 * .625 = .80.

The Tenplen Corporation Has an Asset Beta of 1