Consider the following information about two companies. The companies operate in different industries.

	ABC Corp	XYZ Corp
Beta (equity)	1.2	1.8
Market value of debt	500	1600
Market value of equity	500	400

The market risk premium is 5% and the 10-year Treasury note rate is 2%

A) interpret the equity beta for each company (2 points)

B) What is the required return for the equity of each of these companies? What does this mean? (3 points)

C) Estimate the asset beta for each of these companies. In calculating your answer, assume that the debt beta for each is zero. (3 points)

D) XYZ has a higher beta. Does this mean it operates in a riskier industry? (2 points).