Question 10 [5 pts]

Determine whether each of the statements (a)(c) is True or False.

A) The CAPM beta for debt securities is on average low, even for speculative-grade debt, because the variability of debt cash flows is generally low.

B) In general, the estimates of unlevered asset beta vary widely across firms even in the same industry, whereas the estimates of equity beta are fairly similar in the same industry.

C) In the absence of tax, the weighted average cost of capital is lower than the unlevered cost of capital.

Answer:

a)

b)

c)