Note: market risk premium of 5.5% for T. Bond Rate, and 8.7% for the T. bill rate, and tax of 40% where none is specified. 01: You have run a regression of returns of Aramco, a petrochemical and Oil producer, against the S&P 500 Index using monthly returns over the last 5 years and arrived at the following regression: Return Aramco = -0.20% +1.50 Return s&P 500 If the stock had a Jensen's alpha of +0.10% (on a monthly basis) over this period, estimate the monthly riskfree rate during the last 5 years. Q2-A: You have been asked to analyze GenCorp, a corporation with food and tobacco subsidiaries. The tobacco subsidiary is estimated to be worth $ 15 billion and the food subsidiary is estimated to have a value of $ 10 billion. The firm has a debt to equity ratio of 1.00. You are provided with the following information on comparable firms: Business Average Beta Average D/E Ratio Food 0.92 25% Tobacco 1.17 50% All firms are assumed to have a tax rate of 40%. If the current long-term bond rate is 6%, estimate the current cost of equity of GenCorp