Question: a) The following information is given for two securities, X and Y; Security Beta Expected return X 1.8 22% Y 1.6 20% If the risk

a) The following information is given for two securities, X and Y;

Security	Beta	Expected return
X	1.8	22%
Y	1.6	20%

If the risk premium is 5%, what investment decision would you make on these securities, given a market return of 12%. (10 marks)

c) Demonstrate how the arbitrage process will take place as per the Modigliani-Miller (MM) approach to capital structure, if market values of identical firms are different. . (15 marks)

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