Unlevered Beta

[archived_user]

Which formula should be used (with or without tax effect) – I’ve seen both used throughout different mock exams.
1) Beta (unlevered) = Beta (equity)* (1/(1+(D/E)))
2) Beta (unlevered) = Beta (equity)* (1/(1+(1-t)(D/E)))

 

[archived_user]

At Level II it appears that they use the first; at Level I the second seems to be the way CFA Institute has gone recently.

 

[archived_user]

I agree with S2000, I asked schweser the other day and they gave me the same answer.

 

[archived_user]

Interesting. Level 2 uses the more simple formula without tax effects?

 

[archived_user]

use first one in leval 2.it will be more easy to remember as: Beta (unlevered)*(1+(D/E)) = Beta (equity)

 

[archived_user]

deeshen13 wrote: Interesting. Level 2 uses the more simple formula without tax effects?

Please don’t ask us why.