A company has a debt / equity ratio of 0.65. The company has no preference shares...

Question

Question

A company has a debt / equity ratio of 0.65. The company has no preference shares in circulation. Who is the portfolio's weighting factor?

Answer 1

Answer #1

Debt equity ratio means the level of debt compared to the equity

.65 debt equity ratio means that there is .65 of debt for every 1 of equity

The portfolio weighting factor will be equal to (1 +.65) = 1.65

Equity weight = 1/ 1.65

Debt weight = .65 / 1.65

Answer 2

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