5)

estion s 10 points Save Consider the following information regarding corporate bonds: Rating AAA AA A BBB BB B CCC Average Default Rate 0.0% 0.1% 0.2% 0.45% 2.2% 5.5% 12.2% Recession Default Rate 0.0% 1.0% 3.0% 3.0% 8.0% 16.0% 48.0% Average Beta 0.05 0.05 0.05 0.10 0.17 0.26 0.31 Market Total Capitalization Enterprise Equity Debt Company ($mm) Value ($mm) Beta Rating Taggart Transcontinental $4500 8000 1.1 BBB Rearden Metal $3800 7200 1.3 AAA Wyatt Oil $2400 3800 0.9 A Nielson Motors $1500 4400 1.75 BB Suppose that because of the large need for steel in building railroad infrastructure, Taggart Transcontinental and Rearden Metal decide to form into one large conglomerate. Your estimate of the asset beta for this new conglomerate is