Question: Notes & perfect market equations: In equilibrium, required returns (based on risk) = expected returns CAPM equation: E(TA) = rf + BA (E(TM) -

Notes & perfect market equations: In equilibrium, required returns (based on risk) = expected returns CAPM equation: E(TA) = rf + BA (E(TM) - rf) WACC = D/V E(D) + EN E(TE) E(TE) = E(TA) + (E(TA) - E(ID)) D/E (MM Proposition 2 equation) BA= D/V BD + EN BE BEBA (BA-BD) D/E + TE = E(FE) = BE = 1.5 rf = 4% TD= E(D) = 6% BD = TM = E(TM) = 12% TA= E(TA) = BA Solve for this D/V = 0.7

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