Question

8. Gamble: What is the APR in the preceding problem if the holding period were 18 months? (5 or-5) 9. What is the beta of an equally-weighted portfolio containing stocks with betas of 1.4.0.9 and 1.72 (5) 10. What is the cost of debt when bonds incur a $25 charge and have a par value of $1000, a price of $900. a coupon rate of 4.5% and a maturity of 10 years? (5) 11. If a balance sheet includes long-term debt of $450,000, common stock of $650,000 and preferred stock of $150,000, what are the implied book value weights? (5) 12. What is the cost of common stock for a firm that just paid a $2 dividend that will grow annually at 6% if shares trade at $45 and a 4% flotation cost is incurred? (5) 13. Evaluate the project in Problem #1 using the profitability index method and a 10% required return. (10) 14. What is the EAR when an investment grows from $110 to $120 after 2 years? (5) 15. What is the cost of preferred stock for a firm with a $50 par value, a 7% dividend rate, a share price of $58 and a 5% flotation cost? (5) 16. What are the expected return and standard deviation of the possible returns below? (10) Economy Probability Return Good 0.60 25% Bad 0.40 -15% 17. What is the cost of common stock if its beta is 1.5 and market and risk-free returns are 11% and 2%, respectively? (5

Answer 1

9.
=1/3*(1.4+0.9+1.7)
=1.333333333

10.
Using financial calculator
N=10
PV=-900+25=-875
FV=1000
PMT=4.5%*1000=45
CPT I/Y=6.21575%

11.
Debt=450000/(450000+650000+150000)=36.00000%

Common Stock=650000/(450000+650000+150000)=52.00000%

Preferred Stock=150000/(450000+650000+150000)=12.00000%

12.
=2*1.06/(45*(1-4%))+6%
=10.90741%

P.S.: I am not allowed to answer more than 4 questions