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The beta of Who’s Inc. is 1.27. The beta of Your Daddy Inc. is 1.14. The...

The beta of Who’s Inc. is 1.27. The beta of Your Daddy Inc. is 1.14. The two firms are going to merge to form Who’s Your Daddy Inc. Your Daddy Inc. is four times larger than Who’s Inc. What is the beta of the new firm?

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Answer #1

beta is the werighted average = beta of Firm 1 * Weight of firm 1 + beta of Firm 2 * Weight of firm 2

= 1.27 * 1/ 5 + 1.14 * 4/ 5

= 1.166

NOTE : - Weight of Who's inc : Weight of Your Daddy

1 : 4

Total weight 1+4 = 5

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