Question 4 a) Beta Sky company has a target capital structure of 55% equity and 45% debt. Its cost of equity is 16% and the cost of debt is 9%. The relevant tax rate is 35%. What is Beta Sky's WACC? (6 marks) b) The returns of Beta Sky company have a standard deviation of 40% per annum and have a correlation of 0.65 with the stock market. The standard deviation of the stock market is 20%. What is Beta Sky's beta (B)? (7 marks) c) What is meant by gearing? How does gearing affect the financial risk of a firm? (7 marks) d) Explain triangular arbitrage. Is this likely to occur in real life? (5 marks) (Total: 25 marks)