If the Debt Beta Is Zero, Then the Relationship Between

question 18

Multiple Choice

If the debt beta is zero, then the relationship between the equity beta and the 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)equity beta = 1 + (debt-equity ratio/ beta of assets).

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Definitions:

General Fund

A main operating fund in governmental accounting, covering most basic services and activities.

Direct Increase

An increase in the value or quantity of an asset or account directly due to additional investments or improvements, rather than through earnings.

Capital Assets

Long-term assets acquired for use in business operations, expected to be used or held for more than one financial period.

Capitalized

Costs that are recognized as part of an asset on the balance sheet rather than being expensed, often related to the acquisition or construction of a long-term asset.