Main table:

Table for part a:

Consider the following airline industry data from mid-2009: :: a. Use the estimates in table to estimate the debt beta for each firm (use an average if multiple ratings are listed). b. Estimate the asset beta for each firm. c. What is the average asset beta for the industry, based on these firms? a. Use the estimates in table to estimate the debt beta for each firm (use an average if multiple ratings are listed). The beta of the debt for each company is: (Round to three decimal places.) Debt Ratings BB Debt Beta Equity Beta 2.027 Company Name Delta Air Lines (DAL) Southwest Airlines (LUV) JetBlue Airways (JBLU) Continental Airlines (CAL) Market Capitalization ($ million) 4,968.2 4,933.5 1,284.7 1,100.5 Total Enterprise Value ($ million) 16,968.7 6,367.2 3,824.8 4,356.5 0.981 A/BBB 1.906 B/CCC 2.005 B Company Name Delta Air Lines (DAL) Southwest Airlines (LUV) JetBlue Airways (JBLU) Continental Airlines (CAL) Market Capitalization ($ million) 4,968.2 4,933.5 1,284.7 1,100.5 Total Enterprise Value ($ million) 16,968.7 6,367.2 3,824.8 4,356.5 Equity Beta 2.027 0.981 1.906 2.005 Debt Ratings BB A/BBB B/CCC B By rating Average beta Average Debt Betas by Rating and Maturity A and above BBB BB 15 Yr Average beta 0.01 0.06 0.07 0.14 Source: S. Schaefer and I. Strebulaev, "Risk in Capital Structure Arbitrage," Stanford GSB working paper, 2009