In the Capital asset pricing model (CAPM), the levered beta is the relevant measure of total equity risk.
This total risk results from both:
- (i) the underlying business risk and
- (ii) the additional financial risk resulting from the level of debt in the firm’s financial structure (financial gearing).
The level of debt may be an actual current level, or a future assumed or prospective level, used for modelling purposes.
The equity beta is also known as Geared beta or Equity beta.