Hi,
Im struggling to work through some parts of this question unfortunately.
I totally understand how we derive the Asset Beta of 0.61 but Im totally confused with how we get the Asset Beta of Hotel Services only of 0.75? Maybe I am being totally thick but I just cant grasp it?
I am hoping the Godfather of Accounting (Mr Moffat) can help me here?
Thanks in advance
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Coeden Co - Dec12 (part a)
7y ago#1If two streams with different betas are combined together, then the overall beta will be the weighted average of the individual betas, as I explain in my free lectures on CAPM.
Here we know that the overall asset beta for Coeden is 0.61, and at the moment Coeden is 60% hotel services and 40% property business.
The question also tells us the the asset beta for property business is 0.4.
Therefore, if X is the beta for hotel services:
0.61 = (60% x X) + (40% x 0.4)
0.61 = (60% x X) + 0.16
60% x X = 0.61 - 0.16 = 0.45
X = 0.45 / 0.6 = 0.75
Thank you sir, the penny has dropped I think (well I hope)!!
7y ago#3You are welcome :-)
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