Problem #1 You are about to review a beta regression done on Enel, a large Italian manufacturing company, and the output is provided below: (4 points)

Returns_Enel = 0.25% + 1.08 Returns_{Borsa Italiana} R² = 45%

• The Borsa Italiana is the Italian equity index and the regression was done using two years of weekly returns.
• Assume now that the beta from this regression is correct and that you are trying to estimate the cost of equity for Enel in Euros.
• The ten-year Italian Government bond rate in Euros is 8.35% but the Italian government has a local currency rating of AA, with a default spread of 0.65% associated with the rating.
• The risk premium for the US and other mature markets is about 4% and Italian equities are three times more volatile than Italian bonds. Estimate the cost of equity in Euros.
• The company gets half of its revenue from Italy and another half from US