If debt is zero, beta equity is equal to beta assets.

Remember I told you, right at the beginning?

Right now it's a little bit intense on formulas and so on.

But I'll shift gears in a second.

But now that you know finance,

you've got to be able to deal with both formulas, and graphs, and examples.

So right now, let me just focus on this formula a little bit.

So what is beta asset?

Look at the awesomeness of it, it's the risk of your business, right?

So think about this.

Risk of your business is related to return of your business.

Again, I'm going back to the previous equation.

The previous equation Is identical, except this is for

returns and the next equation is for risks.

Just, do this.

You know like when you're getting your eyes checked.

They'll say this or this?

This or this?

You know, so basically these are the same things.

Except one is called return and one is called risk.

And that's another good lesson.

Whenever you think return, what should you think?

Risk.

And what is the measure of risk?

Beta.

Beta risk.

Beta.

Risk.

Return.

Relationship is intimate.

Never think of one without the other.

Okay.

So beta of the equity firm without any debt beta has it.

Everybody okay with that?

Yeah?

Now as, imagine, you take on debt.

Turns out the debt risk that,

the asset risk is positive and its called financial risk.