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Beta is a multiple used to adjust up (Beta > 1) the equity risk premium if a stock is expected to be riskier than the market, and down (Beta < 1) if the stock is lower risk than the market. Investments are exposed to two types of risk: systematic and unsystematic. E(r) = Rf + ??(Rm
MarketRisk-Free Rate: Beta calculations often involve comparing the asset’s returns to a risk-free rate, such as the yield on a government bond with a similar maturity. The risk-free rate serves as the baseline return with no marketrisk and provides context for assessing an asset’s risk premium.
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