What would the risk-free rate have to be for the two stocks

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Reference no: EM131863033

1. Stock A has an expected return of 13.7 percent and a beta of 1.1. Stock B has an expected return of 6.4 percent and a beta of 0.4. Both stocks have the same reward-to-risk ratio. What is the risk-free rate? That is, what would the risk-free rate have to be for the two stocks to be correctly priced?

2. Suppose ABC Company has the following capital structure: 32% in debt, 14% in preferred stock, and remainder in common equity. The before-tax cost of debt is 6.3%, the cost of preferred stock is 10.6%, and the cost of common equity is 14.3%. The tax rate is 28%.

Reference no: EM131863033

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