Chapter 12: Capital structure

Question 1

Arbitrage

Answer 1

: When a purchase and sale of a security takes place simultaneously in different markets, with the aim of making a risk-free profit through the exploitation of any price difference between the markets.

Question 2

Asset beta

Answer 2

: An ungeared beta ie only measures business risk.

Question 3

Equity beta:

Answer 3

A measure of the systematic risk of a share, including its business and financial risk.

Question 4

Capital structure:

Answer 4

The capital structure of a company refers to the mixture of equity and debt finance used by a company.