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Chapter 11:
Question 7: Calculating Return and Standard Deviation State of Economy Depression Recession Normal Boom Expected Return ( Standard Deviation
( ) ( ) ( ) ( )

## Rate of Return if State Occurs -0.045 0.044 0.120 0.207

Question 9: Returns and Standard Deviations Rate of Return if State Occurs Stock A Stock B Stock C 0.07 0.15 0.33 0.13 0.03 -0.06

## Hence, the expected return of the portfolio is: ( ) (

b. The variance of a portfolio invested 20 percent each in A and B, and 60 percent in C ( Hence, the expected return of the portfolio is: ( ) ( The variance of the portfolio is: ( ) ( ) ) ) ( )

[Type here] Question 16: Using CAPM E(Ri) = 16.2%; = 1.75; E(Rm) = 11%; What must the risk-free rate be? ( ) ( ( ) ) ( )( )

Question 27: Covariance and Correlation State of Economy Bear Normal Bull Expected Return ( ) ( ) ( ( ) ) ( ( ) ) ( ( ) ) Probability of State of Economy 0.30 0.50 0.20 Return on Stock J -0.020 0.138 0.218 Return on Stock K 0.034 0.062 0.092

## Standard Deviation Covariance ( ) ( ( Correlation

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Chapter 13:
Question 12: WACC Target debt-equity ratio = 0.65 WACC = 11.2% Tax rate = 35% a. If Koses cost of equity is 15%, its pretax cost of debt is: ( ) ( )( )

## b. The aftertax cost of debt is 6.4%, the cost of equity is: ( ) ( )

Question 13: Finding the WACC Assume the companys tax rate is 35%. Debt: Common stock: Market: 5,000 8% coupon bonds outstanding, \$1,000 par value, 20 years to maturity, selling for 103% of par; the bonds make semiannual payments. 160,000 shares outstanding, selling for \$57 per share; the beta is 1.10. 7% market risk premium and 6% risk-free rate.

The market values of bonds and equity are as follows: ( ( Total market value of company is: )( ) )

The cost of equity using CAPM is: ( The cost of debt is the YTM of the bonds: ( ) ( ) )

## [Type here] The WACC is: ( ) ( )

Question 19 Debt: 40,000 bonds with a 7% coupon rate and a current price quote of 119.8; the bonds have 25 years of maturity. 150,000 zero coupon bonds with a price quote of 18.2 and 30 years until maturity. 100,000 shares of 4 percent preferred stock with a current price of \$78, and a par value = \$100 1,800,000 shares of common stock; the current price is \$65, and the beta of the stock is 1.1 The corporate tax rate is 40%, the market risk premium is 7%, and the risk-free is 4%

## Preferred stock: Common stock: Market:

The market values of normal bonds, zero bonds, preferred stock and common stock are as follows: ( ( ( ( The total market value of company is: )( )( ) ) ) )

The cost of equity using CAPM is: ( The cost of debt is the YTM of the bonds: ( ) ( Required return on preferred stock is: )( ) )

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