Purchase Solution

Rate of Return and Unlevered Beta

Not what you're looking for?

Ask Custom Question

#1. An asset has a beta of 1.6. The risk-free rate is 6 percent, and the market risk
premium is 8 percent. Using the SML, estimate the required rate of return on this
asset.

#2. Suppose Firm A's levered beta is 0.75, its D/E ratio is 0.62, and its tax rate is 34 percent. Calculate its unlevered beta.

Purchase this Solution
Solution Summary

The solution explains how to calculate the required rate of return and the unlevered beta.

Solution Preview

#1. An asset has a beta of 1.6. The risk-free rate is 6 percent, and the market risk
premium is 8 percent. Using the SML, estimate the required rate of return on this ...

Purchase this Solution
Free BrainMass Quizzes
Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

View More Free Quizzes
Related BrainMass Solutions

  • Levered Beta

    California Real Estate, Inc. currently is an all-equity firm, the current expected rate of return on the firm's equity is 20%, risk free rate is 5% and the market risk premium is 10%.

  • Equity beta and rate of return

    The solution explains how to calculate the equity beta and the required rate of return.

  • Risk, beta and exchange rate risk

    The beta is used in the CAPM to calculate the required return which is given as Required return = Rf + (Rm-Rf) beta Where Rf is the risk free rate, Rm is the market return and beta is levered or unlevered.

  • The Stroud Drilling Company

    It has identified a pure play company in the mobile home business that is also unlevered, and has an equity beta of 1.5. Assume that the risk-free rate is 5%, the market risk premium is 6%, and all firms face a marginal tax rate of 30%.

  • Unleveraged beta

    The beta of equity can be written as a function of the unlevered beta and the debt-equity ratio BL = Bu (1+ ((1-t)D/E) where BL = Levered or Equity Beta Bu = Unlevered Beta t = Corporate marginal tax rate D = Market Value of Debt E = Market Value

  • Evaluating projects: market risk and decision making

    Think unlevered Beats, WACC, NOV, cost of equity..etc beta assets= (D/V )* beta debt + (E/V) *beta equity where beta assets= unlevered beta We assume that the Beta of debt is wqual to 0 Therefore beta equity

  • Cost of Capital - for Kraft Foods organization (KFT)

    Answer: As we know that, The Capital Asset Pricing Model (CAPM) is: Here, Ke= Cost of Equity Rf= Risk free rate Rm= Market rate of return, and β= Beta, systematic risk Now, To calculate the market rate of return dividend yield from the

  • Nikita Inc tradition of financing operations with equity issues

    Beta (levered) = Beta (unlevered) + [Beta (unlevered) - Beta (debt)]*Debt/Equity Beta (unlevered)=0.9 (calculated above) Beta (debt)=0 (debt is risk free) Debt/Equity = 10%/90% = 0.1111 Beta (Levered ) = 0.9+(0.9-0)*0.1111=1.00 c) What is the return

  • Beta, Cost of Equity, Style portfolios

    If the expected return on the market is 10% and the risk-free rate is 5%, then the equity beta is 0.68_ Required return = risk free rate + beta x (return on market - risk free rate) Or 8.4 % = 5% + beta x (10% - 5%) Or beta = (8.4 % - 5%) / (10%

View More Related Solutions