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John,
Forgive me for asking, but how do these two models interact with one another? Or to put it another way, how are these two combined as the chapter suggests.
I have watched the video lectures and read the chapter twice! But just can’t see the link
Thanks in advance
Ps Thank you for your great resources and congratulations with your award from PQ
Presumably if you have watched the lecture, you are happy with the idea of gearing and regearing the beta.
CAPM is concerned with the fact that the level of risk (the beta) determines the required return. M&M is concerned with the risk due to gearing, and the asset beta formula is dealing with the gearing risk (the formula actually comes from M&M).
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