If the risk-free rate is 5%, the firms required rate of return on its debt is 6%,

Question:

If the risk-free rate is 5%, the firm’s required rate of return on its debt is 6%, the equity beta is 1.4, the equity risk premium is 5.5%, the corporate tax rate is 34%, and the debt–equity ratio is 0.5, what is the expected rate of return on the assets of the firm that is predicted by the (CAPM)?

Capital Asset Pricing Model
The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. The CAPM is a model for pricing an individual security or portfolio. For individual securities, we make use of the security market line (SML) and its...