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Sir i watched the capm part 1 and 2 and capm and mm combined…almost there!!
Sir i had only one doubt
What is beta that is obtained from the stock market index
Is it a asset beta(which shows only the business risk)
In other words the beta which shows the systematic risk is the beta of an ungeared company right??The beta obtained from the stock market index is a measure of systematic risk. It represents the sensitivity of a stock’s returns to the overall market returns.
The beta of an ungeared company, known as the asset beta, reflects the systematic risk or business risk only.
It measures the risk of the business itself, ignoring the effect of any financial leverage or gearing.So again to be sure:
Asset beta and equity beta are two different measures of risk in relation to a company’s shares.
Asset beta measures the risk of the business itself, ignoring the effect of any gearing or financial leverage. It represents the business risk or systematic risk.
Equity beta, also known as geared beta, takes into account both the business risk and the financial risk resulting from any gearing or leverage. It reflects the risk of the shares in the company, including the impact of gearing.
When there is no gearing in the business, the asset beta and equity beta will be the same.
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