Question

EZCUBE Corp. is 55% financed with long-term bonds and 45% with common equity. The debt securities have a beta of .20. The company’s equity beta is 1.20. What is EZCUBE’s asset beta?

Answer 1

Answer:

Asset Beta is 0.65

Explanation:

The formula for asset beta is given below:

Asset beta=Bd*(D/V)+Be*(E/V)

Bd=debt beta=0.20

D/V=debt value=55%

Be=equity beta=1.20

E/V=equity value=45%

Asset Beta=(0.20*55%)+(1.20*45%)

Asset Beta=0.11 +0.54

Asset Beta=0.65