The Equity Beta of a Levered Firm Is 1

question 50

Multiple Choice

The equity beta of a levered firm is 1.2. The beta of debt is 0.2. The firm's market value debt to equity ratio is 0.5. What is the asset beta if the tax rate is zero?

• A)1.20
• B)0.73
• C)0.20
• D)0.87

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Definitions:

Nash Equilibria

Nash Equilibria are concepts in game theory where each player's chosen strategy maximizes their payoff, given the strategies chosen by other players, indicating no incentive to deviate unilaterally.

Maximin Strategy

A decision-making rule used in the face of uncertainty, prioritizing the maximization of the minimum possible payoff.

Credible Threat

A declaration or indication of intended action that is believable and likely enough to influence others' behaviors or decisions.

Warranty

A promise or guarantee made by a seller to a buyer to repair or replace a product that is found to be defective within a specified period.