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anonymous
 5 years ago
Hi, I have a problem with calculating the beta of debt. My company is BBB rated and I looked up an appropriate default spread of 3,2%. My risk premium is 4,2%.
according to the capm, the beta of debt should be calculated by defaultspread/riskpremium. this yields more than 0,7 in my case and from what I have heard is way too high for a beta of debt. Why cant I estimate the beta of debt via the capm?
damodaran in his book at some point says that he assums that only 50% of the default spread carries market risk and therefore divides the beta I obtain by 2. But I thought idiosyncratic risk is
anonymous
 5 years ago
Hi, I have a problem with calculating the beta of debt. My company is BBB rated and I looked up an appropriate default spread of 3,2%. My risk premium is 4,2%. according to the capm, the beta of debt should be calculated by defaultspread/riskpremium. this yields more than 0,7 in my case and from what I have heard is way too high for a beta of debt. Why cant I estimate the beta of debt via the capm? damodaran in his book at some point says that he assums that only 50% of the default spread carries market risk and therefore divides the beta I obtain by 2. But I thought idiosyncratic risk is

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anonymous
 5 years ago
Best ResponseYou've already chosen the best response.0not priced in by assumption in the CAPM.

anonymous
 5 years ago
Best ResponseYou've already chosen the best response.0not priced in by assumption in the CAPM.
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