Unlevered beta is often called...

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BlackTom AI · Accepted Answer

We start by restating the key question and the options to ground the discussion: Unlevered beta is often called... Options: asset beta, unsystematic beta, equity beta, debt beta.
Option 1: asset beta. This term is commonly used in financial theory to describe the beta of a project or a firm if it were financed entirely with all-equity (i.e., unlevered). It reflects systematic risk of the firm's assets independent of capital structure, aligning with the concept of asset beta.
Option 2: unsystematic beta. This label would be misleading here because beta measures systematic risk, which is tied to market movements and not diversifiable through portfolio construction. Unsystemed, by implication, would imply idiosyncratic risk, which beta does not capture.
Option 3: equity beta. Equity beta includes the effects of financial leverage and reflects the risk of the equity holders, not the unlevered, asset-only risk. Levered equity beta tends to be higher when debt is present, so this is not the unlevered concept.
Option 4: debt beta. Debt beta would measure the risk of debt instruments relative to the market, which is typically considered separately from the asset beta. It does not correspond to the unlevered firm’s risk profile and is not the standard term used for unlevered beta.
To connect the reasoning: beta is a measure of systematic risk with respect to the market. When you strip out the effect of debt (i.e., unlever the firm), you’re left with the risk of the firm’s assets as if financed purely by equity. The conventional label for that asset-level systematic risk is asset beta.
In summary, among the choices, the term that best matches the unlevered (de-levered) risk of the firm’s assets is asset beta, while the other options describe different, not-unlevered concepts or mischaracterize what beta measures.

FA25-BL-BUS-F370-8099 Prep 12.1

Unlevered beta is often called...

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