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In capital asset pricing model why do we assume that debt is having zero risk ?
And secondly sir has stated in the chapter 21 of the free lectures that
“Debt is much less risky for investors than equity”
I did not quite understand this statement sir
As I explain in other chapters, the risk is due to the fact that returns are not certain – the more the returns stand to fluctuate then the greater the risk.
With equity the returns (dividends) are not certain and therefore there is risk. However the return on debt (interest) is fixed and therefore there is zero risk (and therefore it is less risky than investing in equity).
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