Barges' has an asset beta of 0.47, the risk-free rate is 4.3 percent, and the market...

Question

Question

Answer 1

Answer #1

Following formula is used calculate the equity beta

Assets beta=weight of debt × beta of debt + weight of equity × beta of equity

Assets beta = 0.47

Weight of debt= Debt equity ratio/ (1+ debt equity ratio)

Weight of debt =0.56 / (1+.56)= .56/1.56

Weight of debt= 0.359

Weight of equity= 1/(1+debt equity ratio)

Weight of debt= 1/(1+.56)= 1/1.56

Weight of debt= 0.641

Firm borrowed at risk free rate so beta of debt will be zero.

Using formula equity beta calculation:

0.47= 0.359× 0 + 0.641× beta of equity

0.47= 0.641× beta of equity

beta of equity= 0.47/0.641= 0.73

Beta of equity is 0.73

Answer 2

Similar Homework Help Questions

Barges' has an asset beta of .57, the risk-free rate is 4.3 percent, and the market...

Barges' has an asset beta of .57, the risk-free rate is 4.3 percent, and the market risk premium is 7.7 percent. What is the equity beta if the firm has a debt-equity ratio of .56? Select one: a. .32 b. .46 c. .37 d. .89 e. .74
Asset Y has a beta of 1.2. The risk-free rate of return is 6 percent, while...

Asset Y has a beta of 1.2. The risk-free rate of return is 6 percent, while the return on the market portfolio of assets is 12 percent. The asset's market risk premium is Asset Y has a beta of 1.2. The risk-free rate of return is 6 percent, while the return on the market portfolio of assets is 12 percent. The asset's market risk premium is
Asset A has a CAPM beta of 1.5. The covariance between asset A and asset B is 0.13. If the risk-free rate is 0.05, the expected market risk premium is 0.07, and the market risk premium has a standard...

Asset A has a CAPM beta of 1.5. The covariance between asset A and asset B is 0.13. If the risk-free rate is 0.05, the expected market risk premium is 0.07, and the market risk premium has a standard deviation of 25%, then what is asset B's expected return under the CAPM? Asset A has a CAPM beta of 1.5. The covariance between asset A and asset B is 0.13. If the risk-free rate is 0.05, the expected market risk...

TPE Corp. has a beta of 1.4. The risk-free interest rate is 3.5 percent and the...

TPE Corp. has a beta of 1.4. The risk-free interest rate is 3.5 percent and the expected market risk premium is 6.5 percent. What is the required rate of return on TPE's stock? 9.1 percent 12.6 percent 11.4 percent 7.7 percent 10.0 percent
Assume that the risk-free rate is 4.3 percent and the market risk premium is 6.1 percent....

Assume that the risk-free rate is 4.3 percent and the market risk premium is 6.1 percent. What is the expected return for the overall stock market? a. 6.1% b. 7.4% c. 4.3% d. 10.4% e. 1.8%
Assume that The Jackson Company has a beta of 0.7 and the risk-free rate of return...

Assume that The Jackson Company has a beta of 0.7 and the risk-free rate of return is 5.0 percent. If the equity-risk premium is seven percent, calculate the cost of equity for The Jackson Company using the capital asset pricing model. Round to the nearest decimal point.

Chapter 9 1. The reward-to-systematic risk (beta) ratio is 7.7% and the risk-free rate is 4.2%....

Chapter 9 1. The reward-to-systematic risk (beta) ratio is 7.7% and the risk-free rate is 4.2%. What is the expected return on a risky asset if the beta of that asset is .89? the security market line. 2. If a stock is overvalued, it will plot A. above B. on or above C. on D. on or below E. below 3. The stock of Healthy Eating, Inc., has a beta of.88. The risk-free rate is 3.8 percent and the market...
You are analyzing a stock that has a beta of 1.11. The risk-free rate is 4.3% and you estimate the market risk premium...

You are analyzing a stock that has a beta of 1.11. The risk-free rate is 4.3% and you estimate the market risk premium to be 6.4%. If you expect the stock to have a return of 11.3% over the next year, should you buy it? Why or why not? The expected return according to the CAPM is? (Round to two decimal places.)
A stock has a beta of 1.08 and has expected rate of return of 11.6 percent....

A stock has a beta of 1.08 and has expected rate of return of 11.6 percent. A risk-free asset currently earns 3.6 percent. If a portfolio of the two assets has a beta of 2.16, what are the portfolio weights? A) 1.50; -0.50 B) 0.82; 0.18 C) 0.65; 0.35 D) 2.00; -1.00 A stock has a beta of 1.08 and has expected rate of return of 11.6 percent. A risk-free asset currently earns 3.6 percent. What is the expected rate...

3)Suppose a cashless firm A has equity beta of 2, asset beta of 1, then its...

3)Suppose a cashless firm A has equity beta of 2, asset beta of 1, then its debt to equity ratio is ____ . 4)Suppose the asset beta of a firm is 1, ND/E ratio is 1, risk free rate is 1%, market risk premium is 5%. Calculate the expected return of your firm for new investors. Enter the return of your firm for new investors _____% 5)Firm A is not listed, and you use comparable method to calculate its beta....