Beta debt = 0 when calculating wacc?

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maisatomai

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Debt has interest rate risk. Why do we ignore it and only use beta as a risk measure?
 
compared to equity’s beta, the debt’s beta is too small.
 
And the correlation between stock market and bond martket is very low.
 
But, in emerging markets, the correlation between equities and bonds is quite high.
 
Keep in mind that in the context of WACC you are assuming the company is a going concern and that debt + interest will be paid… which equates to a ‘zero-risk’ security
ie: Treasury bonds are by definition (haha… maybe not anymore but that’s another discussion) risk free but are subject to interest rate risk
 
I think everyone is over analyzing here. For WACC calculation debt has 0 beta.
DONE
 
batgirl4ever Wrote:
——————————————————-
> Keep in mind that in the context of WACC you are
> assuming the company is a going concern and that
> debt + interest will be paid… which equates to a
> ‘zero-risk’ security
>
> ie: Treasury bonds are by definition (haha…
> maybe not anymore but that’s another discussion)
> risk free but are subject to interest rate risk
+1
 
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