If Beta of Debt Is Zero, Then the Relationship Between

question 9

Multiple Choice

If beta of debt is zero, then the relationship between equity beta and asset beta is given by:

• A) equity beta = 1 + [(Beta of assets)/(debt-equity ratio)]
• B) equity beta = (1 - Debt-equity ratio)(beta of assets)
• C) equity beta = (1 + Debt-equity ratio)(beta of assets)
• D) None of the above

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Definitions:

Mortgage Notes Payable

A liability represented by a legal document indicating the amount owed on a mortgage, including terms for repayment and interest rates.

Financing Activity

Transactions related to raising capital and repaying investors, including issuing equity, taking out loans, and distributing dividends.

Cash Receipts

The total amount of money received by a business during a specific period, including cash sales, collected receivables, and any other cash inflows.

Statement Of Cash Flows

A financial statement that consolidates information about all the money a company gets from its regular operations and outside investments, alongside the money spent on business operations and investments within a certain timeframe.