Question

Assume that a company has a beta of 0.90. The market value of equity is $5,000 and the market value of the company (as determined by its stock price) is $6,000.
What is the company’s unlevered beta?
a. 0.75
b. 0.90
c. 1.00
d. 1.08

Answer 1

The unlevered beta of the company is 0.75.

• The following formula should be used to determine the unlevered beta:

=  Levered beta ÷ (1 + (1 - tax rate) × (Debt  Equity))

= 0.90 ÷ (1 + (1 - 0%) × (($6000 - $5000) ÷ $5000))

= 0.90 ÷ (1 + 0.20)

= 0.90 ÷ 1.20

= 0.75

Therefore we can conclude that The unlevered beta of the company is 0.75.

Thus, all the other options are incorrect.

Learn more about the beta here: brainly.com/question/22354424