Python Exercises for Corporate Finance and Risk Management

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Question: 97

EZCUBE Corp. is 50% financed with long-term bonds and 50% with common equity. The debt securities have a beta of .15. The company’s equity beta is 1.25. What is EZCUBE’s asset beta?


Beta is a measure of market risk. Unlevered beta (or asset beta) measures the market risk of the company without the impact of debt.

'Unlevering' a beta removes the financial effects of leverage thus isolating the risk due solely to company assets. In other words, how much did the company's equity contribute to its risk profile.

  • Define a function with the name "asset_beta" which will take five arguments market value of firm's equity, market value of firms debt, debt security beta, equity beta.
  • The signature of the function should be like:

    def asset_beta(E, D, V, Bd, Be):

  • Use the following formula,

    Asset beta = Bd* (D/V) + Be * (E/V)


    E=Market value of the firm’s equity D=Market value of the firm’s debt V=E+D Bd= Debt security beta Be= Equity Beta

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