Ca final sfm

Beta is a function of the leverage as well as the business risk.

Company having both debt and equity in its capital structure has leveraged its financing, hence levered beta will be used to measure the volatility in its stock.

Unlevered beta is used for those co's wchich does not have debt in its capital structure.

Relationship between both is given by

B(levered)=B(unlevered)[1+D/S(1-T)] where D/S is the debt equity ratio.

Levered beta measures both risks business and financial risk. Business risk are associated with the company's growth whereas financial risk are associated with the capital structure of the company. Unlevered beta only measures business risk.

thanks for the explaination