- This topic has 1 reply, 2 voices, and was last updated 2 years ago by
.
- Posts
for tisa co we have found the equity beta then found the capm ,but for zhichi co question we have taken the asset beta to find capm? why have we taken equity beta since its supposed to reflect business risk. i am confused as to why in some questions they take equity beta while in some asset beta
It is the asset beta that reflects the risk due to the nature of the business. The equity beta measures the risk of the share and if there is gearing in the business then the equity beta is higher than the asset beta because gearing creates extra risk for shareholder.
I do suggest you watch my free lectures on CAPM (and on the ‘impact of financing) because there is never an exam where this is not relevant. CAPM is one of the most important topics in AFM.
- You must be logged in to reply to this topic.