While solving for Equity capital, Schweser calculates total asset beta by equation B(a,T) = w(a,o)B(a,0) + w(a,p)B(a,p). here the weights are calculated assuming Operating asset = 20 and Pension Asset = 25. Can someone clarify how were these figures arrived at? Thanks!
I don’t have Schweser, can you post the exact question or reference the reading number? I’m assuming you’re taking about reading 22 (CFAI text), calculation of WACC, Company’s true Beta, etc etc? If this is a general question based on how did Schweser determine the weights? It would be based the balance sheets supplied from the company. Last year, it gave you the b/s data and you needed to do your calculations by deciphering it from the raw data. The actual reading excerpt is good, you might want to consider reading it.
Thanks for the help carsie, yes it is the same reading 22 of CFAI as well. I have not yet received my CFAI textbooks so cannot say if this example is quoted in them as well. I also think that these weights would have been taken from a B/s, but there is no b/s attached for this exercise and neither is any assumption given. This is also not a ‘question’ as such but is a general example which it gives to explain how is the equity needed on b/s to maintain equity beta of 1.75%.