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A firm's asset beta is 0

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A firm's asset beta is 0.5 and debt beta is zero. If the debVeguity ratio is 1.6, what is the equity beta of the given? A. 0.8 C. 1.0 a. 1.3 D. None of the above B & M

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Explanation

Computation of Equity Beta:

Equity Beta = Asset Beta + Debt to Equity Ratio * (Asset Beta - Beta of Debt)

= 0.5 + 1.6*(0.5 - 0)

= 0.5 + 0.8

Equity Beta = 1.3

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