How to calculate capital structure beta?

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Shorey 0 Comments

I am trying to calculate the beta that is derived from the capital structure of a company. What is the formula that I can use? Do you also know what are the uses of the beta apart from calculating (potentially) the returns of a stock?

1 Answer

score 0 · Answer 1 · 2012-12-02T19:59:21+00:00

You can calculate the beta of a company by using CAPM. If you know the cost of equity then you can use the following equation and re-order to find beta:
Ke=Rf+B(Rm-Rf) where Ke is the cost of equity, Rf is the risk free rate (treasury bond) and Rm is the return of the market (usually an index such as FTSEALL).