You are analyzing a regression of DePaolo Foods, a manufacturer of spaghetti and olive oil, against the S&P .500, using monthly returns over 5 years Return( DePaolo Foods) = -0.001 + 1.25 Returns(S&P...

Extracted text: You are analyzing a regression of DePaolo Foods, a manufacturer of spaghetti and olive oil, against the S&P .500, using monthly returns over 5 years Return( DePaolo Foods) = -0.001 + 1.25 Returns(S&P 500) %3D R2 = 0.25 Assume that you have been asked to be market neutral (assume that the market is correctly priced today). You have computed a historical risk premium of 0.065 by looking at returns on stocks and bonds from 1928 to 2001 and an implied equity premium of 0.045 based upon the S&P 500 today. If the current treasury bill rate is .0.025,the treasury bond rate is 0.047 Estimate the cost of equity for this firm .using the implied equity risk premium What proportion of firm's risk is diversifiable?