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Hi
A part i
In the solution, after the asset beta of the other activities asset beta has been solved to be 1.078, the component asset beta is then solved using weighting of .75 and .25
Where are these weight is derived from?Thanks
The question says that 75% of the equity is in non-component (so the other 25% is in components)
Ok, it also says that ‘80% of the debt finance….can be attributed to other activities’
Is debt finance to be ignored when weighting asset betas between components/products?Yes – the current examiner uses the equity finance on the basis that it is the equity carrying the risk.
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