Last year a Japanese engineering materials corporation, Yamachi Inc., purchased U.S. Treasury bonds that returned an average of 4% per year. Now, Euro bonds are being purchased with a realized average return of 3.9% per year. The volatility factor of Yamachi stock last year was 1.10; but, it has increased this year to 1.18. Other publicly traded stocks in this same business arena are paying an average dividend of 5.1% per year. Determine the cost of equity capital for each year and explain why the increase or decrease seems to have occurred.
Last year a Japanese engineering materials corporation, Yamachi Inc., purchased U.S. Treasury bonds that returned an average of 4% per year. Now, Euro bonds are being purchased with a realized average return of 3.9% per year. The volatility factor of Yamachi stock last year was 1.10; but, it has increased this year to 1.18. Other publicly traded stocks in this same business arena are paying an average dividend of 5.1% per year. Determine the cost of equity capital for each year and explain why the increase or decrease seems to have occurred.
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
Last year a Japanese engineering materials corporation,
Yamachi Inc., purchased U.S. Treasury
bonds that returned an average of 4% per year. Now,
Euro bonds are being purchased with a realized average
return of 3.9% per year. The volatility factor
of Yamachi stock last year was 1.10; but, it has increased
this year to 1.18. Other publicly traded
stocks in this same business arena are paying an
average dividend of 5.1% per year. Determine the
the increase or decrease seems to have occurred.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education