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Unlevered Beta to Levered Beta

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    • Avatar of AasimAasim
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        • CFA Level 1
        14 Mar 2018 at 9:28 am
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        Greetings everyone,

        I’m on reading 36 – Cost of Capital, example 13 in the Corporate Finance-Portfolio Management CFAI books.

        http://tinypic.com/r/essz04/8

        Do you have any idea how the beta is 1.28 for the fourth answer?

        I understand the formula would be .90*(1+(1-.36)(X)…I’m having a hard time finding what X is.

        Thank you very much.

      • Avatar of rsparksrsparks
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          • CFA Level 2
          15 Mar 2018 at 3:28 am
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          You nearly have it.

          you need to find the asset beta.

          when d/d+e = .4

          for every dollar .4 = d, which means .6 = e

          Asset B= .9 [1+ (1-.36)(.4/.6)] = 1.28

          i believe you were taking .4/1.4 instead of .4/.6

          hope this helps,

          Ron

        • Avatar of AasimAasim
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            • CFA Level 1
            15 Mar 2018 at 9:16 am
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            Thank you very much rSparks!

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