5) Equity of Freeway Inc. has a beta of 1.4 and beta of debt is 0.2. Freeway has a debt to equity ratio of 0.3. The equity beta of Sunshine Company is 2 while its debt has a beta of zero. Sunshine's debt to equity ratio is 0.5. Make following assumptions and answer these questions: Assumptions: (a) CAPM holds, (b) Expected return on market portfolio = 19%, (c) Risk-free rate = 8%, (d) There are no taxes or costs of financial distress a. What discount rate to use if Freeway Inc. wishes to invest in the business line of Sunshine. b. If Freeway goes ahead with investment, these projects constitute 10% of Freeway's overall value. If its debt beta and debt/equity ratio remain unchanged, post-investment, what will be the Freeway's new equity beta?

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Portfolio Management

Portfolio management is the process by which an investor decides that how the person will invest in a variety of assets in order to get a desired return in the future. A portfolio means a pool of assets that includes securities, bonds, and other investment instruments which helps in risk minimization of the money that has been invested. In other words, it can be said that a portfolio means a combination of assets in which an investor decides to invest their money in order to get a lump sum return in the future or even a series of cash flow that the person is expecting at the end of their job life.