What is the beta of a stock?
Beta is a measure of a stock’s volatility in relation to the overall market. If a stock moves less than the market, the stock’s beta is less than 1.0. High-beta stocks are supposed to be riskier but provide higher return potential; low-beta stocks pose less risk but also lower returns.
How is beta calculated in CAPM?
Beta coefficient is an important input in the capital asset pricing model (CAPM). CAPM estimates a stock’s required rate of return (cost of equity) as the sum of the risk free interest rate and the stock’s equity risk premium.
|β =||Covariance of Market Return with Stock Return|
|Variance of Market Return|
How do you calculate debt beta?
Beta on Debt Can be Derived from Bond Yields
Without taxes, the formula for Bu is Bu = Be x Equity/Capital + Bd x Debt/Capital.