Q5) (Cost of Capital, Risk and Return) 20 Marks a) Suppose you have predicted the following returns for stocks X and Y in three possible states of nature. What are the expected returns? State Y X Probability 0.3 0.15 0.25 Boom 0.10 0.20 Normal 0.5 0.01 0.02 Recession 0.2 b) A firm with an asset beta of 1.0 has a debt beta of zero when 20% of the capital structure is debt and is estimated to have a debt of 15 if debt went as high as 50% of the capital structure. What is the equity beta under