–shares

–shares

You own shares worth $1000. Beta of company is 2. Company has no debt but decide to issue debt and buy back 20% stock. All the proceeds used to issue risk-free bonds. Corporate tax rate is zero. What is the value of your shares after the buyback is complete? What is the beta of your shares after the buyback? If you sell some shares and invest in risk-free bonds, what fraction of your money do you invest to get a beta of 2?

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