AAA Corp is highly leveraged with a debt to equity ratio of 3. Assuming a tax rate of 30%calculate the asset beta for AAA Corp if its observed beta is 1.7. Note the mean reverting beta for the 3 years is estimated to be 1.56. A)1.56 B)0.55 C)0.89 D)0.50

Is it B? .55

beta(asset) = 1.7 * (1/(1+((1-0.3)*3))) = 1.7 * (1/3.1) = 0.548


strangedays i am curious, where’d you find this question? also does it make any reference to a specific LOS? i know where the topic is in reading 45 but i’m just wondering

I’m guessing its not in an LOS, cause unlevering betas is not even covered in Schweser.

its in CFAI books

right, but given that its not in an LOS, do you really think that it will be tested?

I dont know

volume IV, p.58 i’ve heard that cfai likes to test things that are not covered in schweser … heaven help me

Thats fine, I understand it. I just find it hard to believe that they would test on something that is not covered in an LOS. Why even have make the LOS then?