Reference no: EM133054285

Questions -

Q1. A corporation has 9,000 bonds outstanding with a 5% annual coupon rate, 7 years to maturity, a $1,000 face value, and a $1,200 market price.

The company's 110,000 shares of preferred stock pay a $4 annual dividend, and sell for $40 per share.

The company's 500,000 shares of common stock sell for $25 per share and have a beta of 1 The risk free rate is 5%, and the market return is 11%.

Calculate cost of debt? Briefly show your steps.

Calculate cost of preferred stock? Briefly show your steps.

Calculate cost of equity? Briefly show your steps.

What is company's pre-tax WACC? Briefly show your steps.

What are the weight of debt, preferred stock and equity? Briefly show your steps.

Q2. Capital asset pricing model (CAPM) assumes which of the following?

l. A risk-free asset has zero total risk.

II. Beta is a reliable estimate of systematic risk.

III. There is no proxy for the market rate of return.

IV. The reward-to-risk ratio is constant.

I and II

I, II and III

II, III and IV

I, II and IV

I, III and IV

Q3. Efficient market hypothesis implies that prices are predictible in the short-run but not in the long-run. Is this true or false?