Calculate the equity premium on the following set of data: Stock market return: 12.5% Corporate bond return: 8.2% Short-term T- bills: 4.8% Inflation: 3.1% a. 7.7% b. 9.4% c. 8.2% d. 7.1%
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- Consider the following average annual returns: Investment Average Return 23.4% Small Stocks S&P 500 13.7% 7.4% Corporate Bonds Treasure Bonds Treasury Bills What is the excess return for corporate bonds? O A. 0% B. 3.1% C. 6.2% O D. 1.6% 6.1% 4.3%Consider the following average annual returns: Average Return 23.5% 13.1% 7.5% 6.8% 4% Investment Small Stocks S&P 500 Corporate Bonds Treasure Bonds Treasury Bills What is the excess return for corporate bonds? O A. 1.8% OB. 0% OC. 7% OD. 3.5%Calculate Cost of Common Equity using CAPM (Capital Asset Pricing Model), DCF (Discounted Cash Flow Model) and Bond Yield Risk Premium CAPM data: VEC’s beta = 1.2 The yield on T-bonds = 3% Market risk premium = 7% DCF data: Stock price = $27.08 Last year’s dividend (D0) = $2.10 Expected dividend growth rate = 4% Bond-yield-plus-risk-premium data: Risk premium = 5.5% Amount of retained earnings available = $80,000 Floatation cost for newly issued shares = 7%