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A question from your mock exam states that gearing ratio (debt: equity) is 0.2. Asset beta is 1.2, tax @30%, Rf is 5% and Rm is 8%.
I am not getting why have you put 100 as equity instead of 80 while calculating Beta equity?
Thanks
If debt:equity is 0.2, then it means that for every $100 equity then the debt is 0.2 x $100 = $20.
However, as I show in my free lectures, check carefully how the gearing is defined in the exam – sometimes it is debt:equity (as here), other times it is debt: (debt + equity)
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