You have the following information on two firms a and b the, Financial Management

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You have the following information on two firms a and b the

You have the following information on two firms, A and B. The market rate of return is 6% and the risk-free rate of return is 1 %.

Firm A’s Beta is 2. Firm B’s Beta is 1.

A. Find the required return to equity for each firm, based on the Capital Market Pricing Model.

B. Find the overall market equity premium.

C. In what sense is Firm A more risky than Firm B?

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Financial Management: You have the following information on two firms a and b the

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