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_B] C)r_E = r_A + (D/(D + E))× [r_A - r_B] D)none of the options

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Quizplus · Accepted Answer

This is the formula for levered equity return, where r_A is the return on assets, r_B is the return on debt, D/E is the debt-to-equity ratio, and r_E is the return on equity.

For a Levered Firm Where BA = Beta of Assets

For a Levered Firm Where B_A = Beta of Assets