Question

1) A) What are the sun domain? Why this classification more relevant A) Compute the beta of the stock from the data given below: Years Stock Return (%) 2 Market Return (%) -5 19 B) What do you understand by Asset Beta of a company? How does it differ from its Equity Beta? If co Rad io 12

Answer 1

Answer:

Year	1	2	3	4	5
Stock Return(%)	-13	2	7	12	6
Market Return (%)	-5	7	7	19	12
Beta = Stock return / Market Return	2.60	0.29	1.00	0.63	0.50

The asset beta (un levered beta) is the beta of a company on the assumption that the company uses only equity financing. In contrast, the equity beta (levered beta, project beta) takes into account different levels of the company's debt. A company has one asset beta and, depending on its debt-to-equity ratio, it can have many different equity betas.

Formula

βA=βE/1+(1−t)×D/E

Where:

βA – asset beta,

βE – equity beta,

D – market value of debt,

E – market value of equity,

t – marginal tax rate.