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May I know the calculation for component asset beta? Why need to multiple with 0.75 and divided by 0.25.
Thanks in advance.As I explain in my free lectures on CAPM, if two streams with different betas are combined together then the overall beta is the weighted average of the two individual betas.
In this question, 75% of Elfu’s equity is in ‘other activities’ and therefore 25% is component production.
We know the overall beta for Elfu and we know the beta for ‘other activities’. Therefore we can calculate the beta for ‘component production’ 🙂
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