Does anyne know why asset beta risk does not change with an increase in D/E ration?
Asset beta is the change in the return on assets divided by the change in the return on the market.
Changing the D/E ratio has no effect on the ROA and it has no effect of the market return, so it has no effect on the asset beta.
One other quick point: asset beta is also referred to as unlevered beta. Unlevered means without debt. Therefore, the effect of changing D/E on asset beta is zero, since asset beta is for a firm with no debt.
Also, Asset beta is unlevered beta while Equity beta is levered beta.
All else the same!
As you say.
thankyou very much you guys have really been helpful
My pleasure.