Levered Beta Calculator

Formula

The formula to calculate the Levered Beta is:

\[ \text{Levered Beta} = \text{UB} \times \left[1 + (1 - T) \times \left(\frac{D}{E}\right)\right] \]

Where:

$\text{Levered Beta}$ is the levered beta
$\text{UB}$ is the unlevered beta
$T$ is the tax rate (%)
$D$ is the total debt
$E$ is the total equity

Levered Beta Definition

Levered beta is a measure of the risk of a company's stock when analyzing the rate of return of a stock using the Capital Asset Pricing Model (CAPM). It takes into account the company's debt-to-equity ratio to come up with a risk factor that can be used as an investing metric.

Example Calculation

Let's assume the following values:

Unlevered Beta (UB) = 1.2
Tax Rate (T) = 30%
Total Debt (D) = $500,000
Total Equity (E) = $1,000,000

Using the formula:

\[ \text{Levered Beta} = 1.2 \times \left[1 + (1 - 0.30) \times \left(\frac{500000}{1000000}\right)\right] \approx 1.2 \times \left[1 + 0.70 \times 0.5\right] \approx 1.2 \times 1.35 \approx 1.62 \]

The Levered Beta is approximately 1.62.