## 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.

Formula.

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.