A firm's stock has a market capitalization of 35 million and an equity beta of 1.25. Bonds issued by the firm have a yield rate of 11.8%. Bonds with a similar debt rating have a default rate of 4.7% and a loss rate of 40%. The total market value of the firm's bonds is 65 million. The risk free rate is 3.8% and the market risk premium is 7.3%. Suppose that the CAPM assumptions hold. Calculate the fırm's asset cost of capital. 11.630% 13.605% 12.947% 12.288% 10.972%
Correlation
Correlation defines a relationship between two independent variables. It tells the degree to which variables move in relation to each other. When two sets of data are related to each other, there is a correlation between them.
Linear Correlation
A correlation is used to determine the relationships between numerical and categorical variables. In other words, it is an indicator of how things are connected to one another. The correlation analysis is the study of how variables are related.
Regression Analysis
Regression analysis is a statistical method in which it estimates the relationship between a dependent variable and one or more independent variable. In simple terms dependent variable is called as outcome variable and independent variable is called as predictors. Regression analysis is one of the methods to find the trends in data. The independent variable used in Regression analysis is named Predictor variable. It offers data of an associated dependent variable regarding a particular outcome.
Step by step
Solved in 2 steps