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Hello, dear Mr Moffat
Thanks for uploading Your answers! Its very kind of you.
Could I please ask You to shed light on questions 7 and 12?
Regarding 12, i also marked money marked deposits option as a wrong one. But why this one is wrong?
For number 7, (1) is definitely wrong, and (2) is definitely right.
(3) is very odd – we discussed it before and I think that is it wrong.
For question 12, money market deposits are not restricted to loans between organisations. Individuals can make money market deposits.
Yeah, 3 is very odd..i remember we discussed the case with regearing equity beta, but here they say ungearing equity beta…how we ungear equity beta?
It says: Assuming that the beta of debt is zero will understate financial risk when ungearing an equity beta
But ungearing equity beta is calculating asset beta, am I right? And asset beta means only business risk, not financial risk
It says: Understates financial risk during ungearing equity beta
But ungearing equity beta is calculating asset beta, am I right? And asset beta means only business risk, not financial risk
You are right that the asset beta only measures the business risk.
However, using the formula is removing the financial gearing from the equity beta.
I am still slightly unsure about the question (I think it is a ridiculous question) but we just have to wait and see what the examiners thinks is correct 🙂
Seems so, Sir, but is the removing financial risk same with understating it? When you remove, you remove it totally, dont you? So, there cant be any understatement or overstatement
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