what is the purpose of ungearing the beta? confused.

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November 14, 2010 at 5:30 pm #45971
jrow
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Hi,

Can anybody explain the difference between the asset and equity betas and why we ungear the equity (???) beta?

much appreciated.
November 14, 2010 at 10:16 pm #70560
bridmw
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We ungear the equity beta to see the risk that derives solely from the company’s business risk.

Asset beta is the ungeared beta.
Equity beta includes the gearing – it includes the financial and business risk.
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