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Can someone explain the additional % given at the end of the answers for the market values/betas for impex?
They are used in the Var calc (part b) as an additional % in that calc but I cannot tell how they were calculated.
They are marked as (needed below)……. Equity 7.84%. Debt 1.00%. Total 5.5488%.Thanks
The std deviation of a share is the beta of the share x the std deviation of the market.
Similarly the std deviation of debt is the beta of the debt x the std deviation of the market.If you look at the answer to (a) workings (ii), about three lines down it says ‘So for Impex we have’, followed by a table. The last column of the table is calculating the std deviations for equity, debt, and total.
Thanks. Where does it give the Stan deviation of the market?
Working backwards, the debt Beta is 0.98. So divide 7.84 by 0.98 gives 8 which must be the Stan dev of the market. I can’t find 8 mentioned anywhere…It says that the market is returning 10% with a risk of 8% – the risk is the standard deviation.
Ohhhhh I see.
Thank you. That was really beginning to bug me!!
Appreciate your help
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