Levered Beta

Levered beta, also called equity beta, is a stock's beta with the effect of the company's debt included. It is the beta you see on financial sites and the one that goes into CAPM, because shareholders bear the extra risk that borrowing creates.

The Hamada equation links it to unlevered beta: levered beta = unlevered beta x (1 + (1 - tax rate) x D/E). With an unlevered beta of 0.9, a debt-to-equity ratio of 0.5 and a 21% tax rate, levered beta is 0.9 x 1.395, or about 1.26. Robert Hamada published the formula in 1972.

That higher beta lifts CAPM cost of equity from 9.5% to about 11.3%, which is why cost of equity increases with debt. The levered vs unlevered beta guide shows how to relever a peer beta to your own capital structure. See also beta and unlevered beta.