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
Related questions
Question
9

Transcribed Image Text:Analysts want to estimate the cost of equity for TAR Corporation to use later in a short-term (1-year) project
valuation analysis. They believe that a beta based on analyses of recent past returns is appropriate to
assess TAR's risk level in the future. They found from recent stock return analyses that beta equals to 2.34.
The historical market risk premium is 6.90%.
Treasury Yield
1-year T-STRIPS Yield
2-year T-STRIPS Yield
10-year T-STRIPS Yield
How much is the cost of equity for TAR Corp?
0.25%
1.45%
2.50%

Transcribed Image Text:O a. 15.81%
O b. 18.65%
O c.
Beta of 2.34 is unrealistic because is above 2, therefore we cannot calculate the cost of equity.
O d. 16.40%
O e. 6.90%
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