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+ Assume markets are perfect and in equilibrium as described in Chapter 17. Using the following values and the CAPM equation, what is E(ra), i.e.,

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+ Assume markets are "perfect" and in equilibrium as described in Chapter 17. Using the following values and the CAPM equation, what is E(ra), i.e., the expected return for the following firm's assets? Notes & perfect market equations: In equilibrium, required returns (based on risk) = expected returns CAPM equation: E(ra) = rf + BA (E(M) - rf) WACC = D/V E(rp) + EN E(TE) E(TE) = E(TA) + (E(ra) - E(ro)) D/E (MM Proposition 2 equation) BA = DN BD + EN BE BE = BA + (BA-BD) D/E E = E(re) = BE = 1.5 If = 3% ID = E(D) = 6% BD = M = E(TM) = 17% ra = E(A) = Solve for this BA= = - BA= DN = 0.4 Enter your answer as a percent to two decimal places (e.g., 0.1250 = 12.50%). If the answer is negative, enter with the minus sign (e.g., enter as - 12.50%). Full credit within 0.02% of the correct answer (e.g., 12.48%- 12.52%). Partial credit within 0.10% of the correct answer (e.g., 12.40% - 12.60%). Note - there are two versions of this question. This question asks for the expected return of the assets, E(A). The other version asks for the beta of the assets, BA. Repeat the quiz until you get to see both versions

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