Complete the following table for the expected rate of return on equity for different rates of profit (p) on combined debt and equity and levels of primary gearing assuming that the rate of interest on debt is 6.5%

What can you conclude about the impact of primary gearing on the variability of the return on equity?

Debt/Equity Ratio (Gearing) 0.5 1.5 2.0 Expected Rate of Return on Equity p=10% p=20% p=30% ? ? ? ? ? ? A