Use the following information to answer the question(s)below.Consider the following information regarding corporate bonds:
-Your estimate of the asset beta for Taggart Transcontinental is closest to:
A)0.42.
B)0.59.
C)0.66.
D)0.71.

Question

Use the following information to answer the question(s)below.Consider the following information regarding corporate bonds:  
-Your estimate of the asset beta for Taggart Transcontinental is closest to:
A)0.42. 
B)0.59. 
C)0.66. 
D)0.71.

Quizplus · Accepted Answer

Based on the information given, the asset beta of Taggart Transcontinental is likely to be around 0.66. This is because the average beta for BBB-rated bonds is 0.95, and Taggart Transcontinental has a credit rating of BBB-. However, since it is a regulated utility, we can assume that its asset beta is lower than its debt beta, which is 1.23. Therefore, we can estimate the asset beta to be around 0.66 (average beta of BBB-rated bonds multiplied by the ratio of asset beta to debt beta, or 0.95*(1/(1+(1-0.35)*1.23)) = 0.66).

Use the Following Information to Answer the Question(s)below