What is the expected return of investing in Company C?

1. The expected return of investing in Company C can be calculated using the Capital Asset Pricing Model (CAPM) formula: Expected return = Risk-free rate + (Beta x (Market return – Risk-free rate))

Using the given information, we can plug in the values to get: Expected return = 6% + (0.90 x (4%)) = 6% + 3.6% = 9.6%

2. To calculate the return on the portfolio, we need to find the weighted average return of the two stocks using the following formula: Weighted average return = (Weight of Company A x Return of Company A) + (Weight of Company B x Return of Company B)

Using the given information, we can plug in the values to get: Weighted average return = (30,000 / (30,000 + 35,000)) x (-8%) + (35,000 / (30,000 + 35,000)) x (12%) Weighted average return = .46 x (-8%) + .54 x (12%) = -3.68% + 6.48% = 2.8%

3. To calculate the company’s cost of equity, we need to use the formula: Cost of Equity = Risk-free rate + (Beta x (Market return – Risk-free rate))

We know that the company’s WACC is 9.96% and it’s debt-to-equity ratio is 40% and 60%. The company’s cost of debt is 9%. By using these information we can calculate the company’s cost of equity by using the following formula: Cost of Equity = WACC * Equity / ( Equity + Debt)

Using the given information, we can plug in the values to get: Cost of Equity = 9.96% * 60 / ( 60 + 40) = 9.96% * 60 / 100 = 5.97%

Note: Beta is the measure of a stock’s volatility in relation to the overall market. A beta of 1 indicates that the stock’s price will move with the market, while a beta of less than 1 means it is less volatile than the market, and a beta greater than 1 indicates higher volatility.