In CFAI textbooks i have seen that they have assumed the beta of debt to be 0 in deriving the formula for calculation of beta of equity. But my question is how come the beta of debt be 0 i mean there is market risk associated with bonds also their yields fluctuate with market movements so their beta can not be 0. But at the same time i agree that beta of fixed rate debt would be 0. Please correct me if i am wrong.
beta measures systematic risk only, the same risk as the market.
debt would be measured with interest rate risk, yield curve risk, etc. separate risk class than market risk
You are absolutely right…
Thanks and Regards,
Kailas Kale