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Hi,
In the answer for the above, they have the asset beta of other activities mv debt at a figure of 76.8m – how do they reach this figure?
The loans are valued at $3.6m in the question…
The question says that the debt in Elfu has a market value of 96M and that other activities comprise 80% of the debt.
80% x 96M = 76.8M
Has the component beta been removed from the new syllabus? Because I can’t find it in the new BPP text so I don’t understand it.
If it is still applicable, could you please provide a brief explanation on its computation?
No – it has not been removed from the syllabus (and I am surprised if it is not in the BPP text somewhere. It is in our course notes anyway )
All it is, is that if you are combining two streams with different risks (I.e. Different betas), then the overall beta will be the weighted average of the two individual betas, weighted by the amount invested in each stream.
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