1. If the return on the market portfolio is 10% and the risk-free rate is 5%, what is the effect on a company's required rate of return on its stock of an increase in the beta coefficient from 1.2 to 1.5? 3% increase No change 1.5% decrease 1.5% increase
1. If the return on the market portfolio is 10% and the risk-free rate is 5%, what is the effect on a company's required rate of return on its stock of an increase in the beta coefficient from 1.2 to 1.5? 3% increase No change 1.5% decrease 1.5% increase
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
1. If the return on the market portfolio is 10% and the risk-free rate is 5%, what is the effect on a company's required rate of return on its stock of an increase in the beta coefficient from 1.2 to 1.5?
3% increase
No change
1.5% decrease
1.5% increase
2. Grateway Inc. has a weighted average cost of capital of 11.5 percent. Its target capital structure is 55 percent equity and 45 percent debt. The company has sufficient retained earnings to fund the equity portion of its capital budget. The before-tax cost of debt is 9 percent, and the company’s tax rate is 30 percent. If the expected dividend next period (D1) is P5 and the current stock price is P45, what is the company’s growth rate?
4.64%
2.68%
6.75%
8.16%
3.44%
3. A firm has common stock with a market price of P55 per share and an expected dividend of P2.81 per share at the end of the coming year. The dividends paid on the outstanding stock over the past five years are as follows:
|
Year |
Dividend |
|
1 |
P 2.00 |
|
2 |
2.14 |
|
3 |
2.29 |
|
4 |
2.45 |
|
5 |
2.62 |
The cost of the firm's common stock equity is
Group of answer choices
4.1 percent.
5.1 percent.
12.1 percent.
15.4 percent.
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