How would you expect their required rates of return, Finance Basics

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How would you expect their required rates of return

Problem

According to the principles of financial leverage, debt holders (creditors) expect to receive relatively fixed cash flows (interest) and have a relatively fixed claim over the value of the firm. On the other hand, equity holders (stockholders) expect variable cash flows (dividends) and their claim over the value of the firm is also variable.

How would you expect their required rates of return to differ based on CAPM? Why?

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