International Financial Management 2nd Edition by Geert Bekaert ,Robert Hodrick

Exercise 1

If the risk-free rate is 5%, the firm's required rate of return on its debt is 6%, the equity beta is 1.4, the equity risk premium is 5.5%, the corporate tax rate is 34%, and the debt-equity ratio is 0.5, what is the expected rate of return on the assets of the firm that is predicted by the capital asset pricing model (CAPM)