One of the assumptions of CAPM is debt is risk free. But QN 25 on your mock it says CAPM debt does not assume debt is risk free (although we do normally assume it is risk free when using asset beta formula).

Please explain

From kaplan text “unrestricted borrowing or lending at the risk-free rate of interest”

I cannot comment on what Kaplan choose to write, especially without seeing the context!! However the asset beta formula provided in the exam does not assume that debt is risk free as you can see when looking at it. But whenever we use the formula in the exam we assume that debt is risk free and that therefore the debt beta is zero.

Have you watched my free lectures on this where I do explain this point?

Sir when you are talking about business are we considering the business risk of the new project? or is the business risk our company which gets changed due to investing in a riskier project?

adaacca says

One of the assumptions of CAPM is debt is risk free. But QN 25 on your mock it says CAPM debt does not assume debt is risk free (although we do normally assume it is risk free when using asset beta formula).

Please explain

From kaplan text “unrestricted borrowing or lending at the risk-free rate of interest”

John Moffat says

I cannot comment on what Kaplan choose to write, especially without seeing the context!! However the asset beta formula provided in the exam does not assume that debt is risk free as you can see when looking at it. But whenever we use the formula in the exam we assume that debt is risk free and that therefore the debt beta is zero.

Have you watched my free lectures on this where I do explain this point?

dennissherpa101 says

Sir when you are talking about business are we considering the business risk of the new project? or is the business risk our company which gets changed due to investing in a riskier project?

MohamedH says

Thank you Sir, we can find that the Ukrainian Russian War Now is affecting the level of the Systematic Risk over some of the commodities.