Q3 the following information regarding corporate bonds. To simplify, you may calculate the asset beta as a weighted average between debt beta and equity beta (BU = EBE + EBD), and = assume tax rate is 0%. AAA AA A BBB BB B CCC Rating 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 Company ($mm) Value ($mm) Taggart Transcontinental 4500 8000 Rearden Metal 3800 7200 Wyatt Oil 2400 3800 Nielson Motors 1500 4400 Equity Beta 1.1 1.3 0.9 1.75 Debt Rating BBB AAA A BB a) Your estimate of the debt beta for Taggart Transcontinental would be: b) Your estimate of the debt beta for Nielson Motors would be: c) Your estimate of the asset beta for Rearden Metal is closest to: d) Your estimate of the asset beta for Wyatt Oil is closest to: e) 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 closest to: Q3 the following information regarding corporate bonds. To simplify, you may calculate the asset beta as a weighted average between debt beta and equity beta (BU = EBE + EBD), and = assume tax rate is 0%. AAA AA A BBB BB B CCC Rating 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 Company ($mm) Value ($mm) Taggart Transcontinental 4500 8000 Rearden Metal 3800 7200 Wyatt Oil 2400 3800 Nielson Motors 1500 4400 Equity Beta 1.1 1.3 0.9 1.75 Debt Rating BBB AAA A BB a) Your estimate of the debt beta for Taggart Transcontinental would be: b) Your estimate of the debt beta for Nielson Motors would be: c) Your estimate of the asset beta for Rearden Metal is closest to: d) Your estimate of the asset beta for Wyatt Oil is closest to: e) 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 closest to