nLiabilities and EquityThe stock is currently selling for $12.25 per share, and itsnoncallable $1,000.00 par value, 20-year, 7.00% bonds withsemiannual payments are selling for $1,044.07. The beta is 1.15, theyield on a 6-month Treasury bill is 3.50%, and the yield on a 20-yearTreasury bond is 5.50%. The required return on the stock market is11.50%, but the market has had an average annual return of 14.50%during the past 5 years. The firm's tax rate is 40%.Refer to Exhibit 10.1. Based on the CAPM, what is the firm's cost ofequity?11.41%12.03%13.02%12.40%10.66%

The following formula can be used to compute the cost of equity for the company, taking into account…

Answered: n Liabilities and Equity The stock is…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A company's 5-year bonds are yielding 8.35% per year. Treasury bonds with the same maturity are yielding 7.15% per year, and the real risk-free rate (r*) is 2.90%. The average inflation premium is 3.85%, and the maturity risk premium is estimated to be 0.1 x (t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.9%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
A company’s 5-year bonds are yielding 7% per year. Treasury bonds with the same maturity are yielding 5.2% per year, and the real risk-free rate (r*) is2.75%. The average inflation premium is 2.05%, and the maturity risk premium is estimated to be 0.1 3 (t 2 1)%, where t 5 number of years to maturity. If the liquidity premium is 0.7%, what is the default risk premium on the corporate bonds?
A company's 5-year bonds are yielding 8.25% per year. Treasury bonds with the same maturity are yielding 5.2% per year, and the real risk-free rate (r*) is 2.75%. The average inflation premium is 2.05%, and the maturity risk premium is estimated to be 0.1(t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.7%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
Workman Software has 10.4 percent coupon bonds on the market with 15 years to maturity. The bonds make semiannual payments and currently sell for 93.6 percent of par. a. What is the current yield on the bonds? FJALE 11.11% O 0.21% O 11.67% O 12.17% b. The YTM? O 11.29% O 11.47% O 10.90% O 5.64% c. The effective annual yield? 11.61% O 11.26% O 12.19% O 0.11%
A $1,000 per value bond with a 5.8% coupon and semi-annual interest payments has 25 years to maturity. If the bonds are currently trading for $1,122.75, what is the cost of debt for the firm? 4.94% 5.12% 4.93% 4.50% 6.02%
CGJ Bicycles, Incorporated, is currently selling bonds with an annual coupon of 13 percent. The yield to maturity for these bonds is 6.68 percent and they will mature in 29 years. What should be the current market price of each bond if they each have a face value of $1,000? O$1,494.42 $1,801.05 O $1,805.38 $1.647.73 O $527.89
A company's 5-year bonds are yielding 8% per year. Treasury bonds with the same maturity are yielding 5.2% per year, and the real risk - free rate (r*) is 2.65 % . The average inflation premium is 2.15%, and the maturity risk premium is estimated to be 0.1 \times (t-1) %, where t = number of years to maturity. If the liquidity premium is 0.7 %, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
Podalic, Inc., has 10% percent coupon bonds on the market with 14 years left to maturity. The bonds make semi-annual payments and have a par value of $1,000. If the bonds have a yield to maturity of 12 percent, what is the price? Select one: a.$895.94 b.$815.59 c.$796.31 d.$865.94
Consider a 9-year, $1,000 par value, 12% annual-pay bond that is currently trading at a flat price of $888. The capital gains yield (CGY) is closest to A. 0.7745%. B. 0.4672%. C. 0.3505%. D. 0.0185%.
Which of the following relationships is most accurate regarding a 20-year corporate bond that sells for $958 if it has a 3.75% coupon, paid semi-annually? Select one O A. The YTM < current yield. B. The current yield > YTM. C. The coupon rate < current yield. D. The risk-free rate> YTM.
Consider the case of Eades Corp.: Eades Corp. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $1,040.35. However, Eades Corp. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on Eades Corp.’s bonds? Value YTM YTC If interest rates are expected to remain constant, what is the best estimate of the remaining life left for Eades Corp.’s bonds? 8 years 5 years 18 years 10 years If Eades Corp. issued new bonds today, what coupon rate must the bonds have to be issued at par?
Consider the case of Demed Inc.: Demed Inc. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $950.35. However, Demed Inc. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on Demed Inc.'s bonds? Value YTM YTC If interest rates are expected to remain constant, what is the best estimate of the remaining life left for Demed Inc.'s bonds? O 5 years 13 years O 18 years O 8 years If Demed Inc. issued new bonds today, what coupon rate must the bonds have to be issued at par?

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