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:

Retinal Image

The image projected onto the retina of the eye, where light-sensitive receptor cells convert light into neural signals for the brain to interpret.

Perceptual Constancy

The brain's ability to recognize objects as unchanging even as illumination and retinal images change in shape, size, or color.

Movement Parallax

Movement parallax is a depth cue that arises because objects at different distances move across the visual field at different rates relative to the observer’s motion.

Good Continuation

A principle in Gestalt psychology suggesting that elements aligned in a particular direction are perceived as a more unified whole.