Question

A share preferred stock pays a dividend of $0.50 each quarter. If investors are willing to pay $20.00 for this preferred stock, what is the nominal, not effective, component cost of capital? a. 10% b. 8% c. 6% d. 12% e. There is not enough information to answer this question Stock valuation is impacted by 2. Dividends b. The growth rate of dividends c. The risk associated with the firm issuing the stock d. All of the above c. Answers 2, b, and c plus for how much you can sell the stock in the future. Inflation, recession, and high interest rates are economic events that are best characterized as being 2. systematic risk factors that can be diversified away. b. company-specific risk factors that can be diversified away. c. among the factors that are responsible for market risk d. risks that are beyond the control of investors and thus should not be considered by security analysts or portfolio managers. e irrelevant except to governmental authorities like the Federal Reserve. Calculate the required rate of return for Climax Inc., assuming that (1) investors expecta 4,0% rate of inflation in the future, (2) the real risk-free rate is 3.0%, 3) the market risk premium is 5.0%, (4) the firm has a beta of 1.00, and (5) its realized rate of return has averaged 15.0% over the last 5 years. 2 10.29% b. 10,83% c 11.40% d. 12.00% e 12.60% Cooley Company's stock has a beta of 1.40, the risk-free rate is 4.25%, and the market risk premium is 5.50%. What is the firm's required rate of return 2 11.36% b. 11.65% c 11.95% d. 1225% e 12.55%

Answer 1

4) Annual Dividend Quarterly dividend*4 0.50*4 $ 2.00 Cost of Capital Annual Dividend/Current price (2/20) 0.10 10% Answer:A