Newimber Co Mar/Jun 2019 AFM Q3

As. I explain in my free lectures, when a company is made up of two separate types of business (here clothing division and sportswear division) the overall beta of the company is the weighted average of the betas of the individual divisions. Here the overall beta is 1.10. The clothing division has a beta of 1.21 and comprises 60% of the business. We want the beta of the sportswear division and this comprises 40% of the business. Therefore if the beta of sportswear is X, then (0.6 x 1.21) + (0.4 x X) = 1.10 so, 0.726 + 0.4X = 1.10 0.4X = 0.374 X = 0.935