I’m now reading page 54 SS 5 Book 2 of Schweser on Allocating Shareholder Capital to Pension Plans. Within the blue colored box, last sentence, it states ’ In other words, management can attain the optimal WACC by adjusting thr firm’s asset beta by increasing the D/E ratio (decreased from asset beta) or decreasing the D/E ratio (increased from asset beta).’ From what i have been reading, to keep equity beta constant, a higher % equities in pension asset requires lower asset (operating) beta => lower D/E ratio. This seems to contradict the bool’s statement given above. Is it my understanding or a potential errata? Thanks
it might be a potential errata. I rose your question to Dr.bruce’s attention. Here’s his reply today - I will have to look at that blue box more, but at first glance the last staement might be reversed. If I feel there is a mistake I will post an update. Thanks for pointing it out!