Levered Beta Calculator
Discover the pulse of your investments with the Levered Beta Calculator—a sophisticated tool that unveils the hidden risks and rewards, empowering you to make informed financial decisions.
Related Calculators: Unlevered Beta
Levered Beta Formula
The Levered Beta Calculator utilizes the following formula to calculate the levered beta of an asset:
βLevered = βUnlevered × (1 + (1 - Tax Rate) × (Debt/Equity))
This formula takes into account the asset's unlevered beta, tax rate, and the ratio of debt to equity. It provides valuable insights into the asset's sensitivity to market movements, helping you assess its risk and potential returns.
Levered Beta vs. Unlevered Beta
Understanding the distinction between levered beta and unlevered beta is crucial in assessing investment risk. Unlevered beta represents the asset's sensitivity to market fluctuations without considering its capital structure, debt, or financial leverage. It provides a measure of the asset's inherent risk.
Levered beta, on the other hand, incorporates the impact of debt and financial leverage on the asset's risk profile. It reflects the asset's sensitivity to market movements after accounting for the effects of debt and the associated interest payments. Levered beta is often a more accurate measure of an investment's risk as it considers the influence of leverage on returns.
By comparing the two betas, investors can gain insights into how financial leverage affects an asset's risk and potential returns. It enables them to make informed decisions by understanding how an investment's risk profile changes with leverage and evaluate the impact of debt on its overall performance.
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