If government bonds pay 8.5% interest and CDIC insured savings accounts pay 5.5% interest, shareholders in a moderately risky firm would expect return-on-equity values of

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Shareholders in a moderately risky firm would expect a return on equity higher than the 8.5% offered by government bonds and the 5.5% offered by CDIC insured savings accounts, since equity investment carries higher risk than these options. However, it is uncertain exactly how much higher the return would be, as it depends on the specific level of risk and performance of the firm.

If Government Bonds Pay 8