Use the following information to answer the question(s)below.Consider the following information regarding corporate bonds:
-Galt Industries has a market capitalization of $50 billion,$30 billion in BBB rated debt,and $8 billion in cash.If Galt's equity beta is 1.15,then Galt's underlying asset beta is closest to:
A)0.83.
B)0.92.
C)1.00.
D)1.15.

Question

Use the following information to answer the question(s)below.Consider the following information regarding corporate bonds: 
-Galt Industries has a market capitalization of $50 billion,$30 billion in BBB rated debt,and $8 billion in cash.If Galt's equity beta is 1.15,then Galt's underlying asset beta is closest to:
A)0.83. 
B)0.92. 
C)1.00. 
D)1.15.

Quizplus · Accepted Answer

The correct answer is A because the underlying asset beta is calculated as the equity beta multiplied by the ratio of debt to equity. In this case, the ratio of debt to equity is $30 billion / $50 billion = 0.6. Therefore, the underlying asset beta is 1.15 * 0.6 = 0.83.

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