Assume the risk - free rate is 3.5%, the beta of a company is 0.8 and the market level return is 12%.

a. Provide the CAPM equation and use it to solve for the required return of the company's equity.

CAPM Equation _______________________________________________________________

Required Return_______________________________________________________________

b. Now assume the beta is 1.6. What is the required return of the company's equity?

Required Return _______________________________________________________________

c. What happens as beta increases:

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