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Deat John,
In solution part a) since examiner calculate both assets betas.Ok. Asset Beta of portfolio and Asset beta of other activities. After that how did he get Component asset beta of 1.634 to calculate equity beta based on tisa co capital structure. Can you only explain this working how and why he calculate 1.634 component asset beta ? i didnt understand this working.
The overall beta when combining investments with differing betas is the weighted average of the individual betas.
Here we know the overall beta, and we know the asset beta of the ‘other activities’ and so we can work backwards to calculate the component beta.
My free lectures on CAPM do explain the combining of betas.
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