b(rm - rf) + rf
if b > 1, it means you are borrowing. when you borrow (at the risk-free rate, it is assumed),
you increase your risk.
when you borrow,
the (1-b) * rf becomes an interest payment.
THUS, beta shows the amount you are effectively borrowing (your risk). The more you borrow,
the higher your beta.
Beta-Asset: the chance that their assets can change. I.e., the plant breaks down. No gold found
in mine. New technology doesn't work. If the value of the asset changes, then the value of
EQUITY changes as well! However, the value of debt never changes. Thus, if you are highly levered,
a change in assets will really hurt equity holders, more than 1-to-1. This is because the equityholders
own shares of the company (not debtholders).
Beta-Equity = (1 + D/E)*Beta-Assets.
