Reference no: EM132921169
Question - Historical Returns: Expected and Required Rates of Return - You have observed the following returns over time:
|
Year
|
Stock X
|
Stock Y
|
Market
|
|
2012
|
16%
|
12%
|
13%
|
|
2013
|
18
|
7
|
11
|
|
2014
|
-17
|
-7
|
-12
|
|
2015
|
5
|
3
|
2
|
|
2016
|
24
|
9
|
13
|
Assume that the risk-free rate is 5% and the market risk premium is 7%. Do not round intermediate calculations.
1-What is the beta of Stock X? Round your answer to two decimal places.
2-What is the beta of Stock Y? Round your answer to two decimal places.
3-What is the required rate of return on Stock X? Round your answer to one decimal place.
4-What is the required rate of return on Stock Y? Round your answer to one decimal place.
5-What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y? Round your answer to one decimal place.
6-Five years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,300 face value and a 5% coupon, semiannual payment ($32.5 payment every 6 months). The bonds currently sell for $845.87. If the firm's marginal tax rate is 40%, what is the firm's after-tax cost of debt? Round your answer to 2 decimal places. Do not round intermediate calculations.
7-Barton Industries can issue perpetual preferred stock at a price of $51 per share. The stock would pay a constant annual dividend of $3.30 per share. If the firm's marginal tax rate is 40%, what is the company's cost of preferred stock? Round your answer to 2 decimal places.