43.10
10.Take the following as given:
Company A has an asset beta of 1.2 and is 70% equity and 30% debt financed.
The expected return on the market is 12% and the risk free rate is 3%.
The beta of the company's debt is 0.
a.What is the expected return on the equity of company A? (3)
b.How much of the expected return on the equity comes from financial risk? (4)