The beta of the firm is equal to the weighted average of the betas on its debt and equity under the assumption of no taxes.

Question

Quizplus · Accepted Answer

This is known as the Hamada equation, and it states that the beta of the firm is equal to the unlevered beta plus the product of the debt-to-equity ratio and the levered beta, under the assumption of no taxes. Therefore, the beta of the firm is indeed equal to the weighted average of the betas on its debt and equity.

The Beta of the Firm Is Equal to the Weighted