june 2012 Q4 part a

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    sukaina1786
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    sir,
    can u pls explain how did we calculate component asset beta?? i referred to the solution but couldn’t understand. is there an alternative way to do it???

    pls help


    Avatar of johnmoffat
    John Moffat
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    The assets betas themselves have been calculated using the asset beta formula on the formula sheet, so the total asset beta for Elfu is 1.217 and the asset beta of Elfu’s other activities is 1.078.

    If two steams with different betas are merged together, then the total beta is the weighted average of the individual betas.

    So….if the beta of the new project is ‘X’, then the total beta is 0.25X + 0.75 x 1.078
    (because the question says that 75% is in other activities). We know what the total is, and so then we can work out ‘X’.


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    sukaina1786
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    thanks a lot sir. got it!!


    Avatar of johnmoffat
    John Moffat
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    That’s great :-)

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