For a Levered Firm Where B_A = Beta of Assets

question 5

Multiple Choice

For a levered firm where b_A = beta of assets and b_D = beta of debt,the return on equity (r_E) is equal to:

• A)r_E = r_A
• B)r_E = r_A + (D/E)× [r_A - r_B]
• C)r_E = r_A + (D/(D + E))× [r_A - r_B]
• D)none of the options

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