Bill Gates Corporation is a holding company with four main subsidiaries. The percentage of itsbusinesscoming from each of the subsidiaries, and their respective betas, are as follows:

SUBSIDIARY PERCENTAGE OF BUSINESS BETA

Software 40% 1.5

Hardware 30% 1.2

Outerwear 10% 0.9

Underwear 20% 0.6

a. What is the holding company's beta?

b. Assume that the risk-free rate is 5 percent and the market risk premium is 8.0 percent. What is the holding company's required rate of return?

c. What would the Software subsidiary company's required rate of return be if inflationexpectations increased by 3%?

d. Return to the original numbers in part b above.What would the Software subsidiarycompany's required rate of return be if investor risk aversion increased and the marketrisk premium rose an additional 4%?

e. Return to the original numbers in part b above.Gates Corp. is considering a change in itsstrategic focus:it will reduce its reliance on the software subsidiary, so the percentage of itsbusiness from this subsidiary will be 30 percent.At the same time, the company will increase itsreliance on the underwear division, so the percentage of its business from that subsidiary willrise to 30 percent.What will be the new beta coefficient and shareholder required rate ofreturn if the company adopts these changes?