Hubbard's Pet Foods is financed 90% by common stock and 10% by bonds. The expected return on the common stock is 10% and the rate of interest on the bonds is 8%. Assume that the bonds are default-free and that there are no taxes. Now assume that Hubbard's issues more debt and uses the proceeds to retire equity. The new financing mix is 40% equity and 60% debt.

If the debt is still default-free, what happens to the expected rate of return on equity?(Round your answer to 2 decimal places.)
Expected rate of return on equity %
What happens to the expected return on the package of common stock and bonds?(Round your answer to 2 decimal places.)
Expected return on the package of common stock and bonds %