1. Generally, which of the following is true? (b = beta) A. bD < bA < bE B. bE < bA < bD C. bA < bE < bD D. bA < bD < bE 2. The asset beta of a levered firm is 1.1. The beta of debt is 0.3. If the debt equity ratio is 0.5, what is the equity beta? (Assume no taxes.) A. 1.50 B. 1.10 C. 0.30 D. 0.15 3. Modigliani and Miller's Proposition II states that: A. the expected return on equity is positively related to leverage. B. the required return on equity is a linear function of the firm's debt to equity ratio. C. the risk to equity increases with leverage. D. the expected return on equity is positively related to leverage, the required return on equity is a linear function of the firm's debt to equity ratio, and the risk to equity increases with leverage. 4. A firm has a debt-to-equity ratio of 1. If it had no debt, its cost of equity would be 12 percent. Its cost of debt is 9 percent. What is its cost of equity if there are no taxes? A. 21 percent B. 18 percent C. 15 percent D. 16 percent