申論題

1.Assume a firm's debt is risk-free, so that the cost of debt equals the risk-free rate, Rf. Define βA as the firm's asset beta-that is, the systematic risk of the firm's assets. Define β_E to be the beta of the firm's equity. Use the capital asset pricing model (CAPM) along with M&M Proposition II to show that β_E =β_A x (1+D/E), where D/E is the debt-equity ratio. Assume the tax rate is zero.