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Im getting a little confused.
What does it mean when a company is geared?
What is a geared beta as opposed to an ungeared beta?Have you watched my free lectures on capital asset pricing model? (Because all of this is explained in the lectures).
The geared beta measures the risk of a share in a business. The more gearing there is in the business then the more risky that the shares are and therefore the higher the geared beta will be.
The ungeared (or asset) beta is a measure of the risk if there was no gearing – i.e. the risk of the actual business itself.
A company can never be all debt financed! There must always be some equity finance.
I do suggest that you watch my free lectures – they are a complete course for Paper F9 and cover everything needed to be able to pass the exam well.
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