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

Question

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 · Answer

not priced in by assumption in the CAPM.

anonymous · Answer

not priced in by assumption in the CAPM.

anonymous · Answer

0.0