For a Levered Firm Where B_A = Beta of Assets

question 56

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_D].
• C)r_E = r_A + (D/(D + E)) × [r_A - r_D].
• D)None of the options are correct.

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