Question 2 Red Corporation is a holding company with four main subsidiaries

Question 2

Red Corporation is a holding company with four main subsidiaries. The percentage of its business coming from each of the subsidiaries, and their respective betas, are as follows: Subsidiary Percentage of business Beta Electric utility 60% 0.70 Cable company 25 0.90 Real estate 10 1.30 International projects 5 1.50 From the above information, you are required to answer the following questions: a. What is the holding's company beta? (3 marks) b. Having beta as in part (a) and the risk-free rate is 6% and the market risk premium is 5%. What is the holding company's required rate of return? (2 marks)