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Dear tutor what is the meaning of degear and regear beta how to use it and when to use it totally confused 🙁 need help plz explain
You really do need to watch the free lectures on CAPM and on ‘The impact of financing’ (and if necessary the relevant F9 lectures, because this is revision of F9), because I obviously cannot type out all the lectures here 🙂
The beta of a share measure the riskiness of the share and is known as the equity beta or the geared beta.
The reason for a share being risky is partly because of the nature of the business (the business risk) and partly because of the gearing in the business (the gearing).
If we want to know the riskiness of the business itself, then we need to calculate what the beta would be if there was no gearing. This is the asset beta or the ungeared beta.
We can go from one to the other by using the asset beta formula on the formula sheet.
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