1. What is the expected rate of return for the hypothetical stock, X?

X is in the consumer discretionary sector (CDS)

Standard Deviation of CDS = 16%

Standard Deviation of the market = 20%

Covariance of CDS and The Market = .038

Historical Average Return of CDS= 18%

Historical Geometric Return of CDS = 17.5%

Historical Average Risk Free Rate = 3%

Historical Geometric Mean of Risk Free Rate = 2.97%

Historical Average Market Return = 20%

Historical Geometric Mean of Market Return = 19%

Corporate Tax Rate of 21%

Personal Income Tax Rate of 35%

Book Value of Assets for X = $50BN

Book Value of Debt for X = $10BN