Sportique Inc. has a stock beta of 1.7. The 10- year Treasury bond currently yields 3.9% and analysts believe the S&P 500 should yield about 12% in the future. What is the company's cost of equity using this information? a) 4.59% b) 7.42% c) 11.04% d) 13.62% e) 17.67%

Sportique Inc. has a stock beta of 1.7. The 10- year Treasury bond currently yields 3.9% and analysts believe the S&P 500 should yield about 12% in the future. What is the company's cost of equity using this information? a) 4.59% b) 7.42% c) 11.04% d) 13.62% e) 17.67%

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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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

Sportique Inc. has a stock beta of 1.7. The 10-
year Treasury bond currently yields 3.9% and
analysts believe the S&P 500 should yield
about 12% in the future. What is the company's
cost of equity using this information?
a) 4.59%
b) 7.42%
c) 11.04%
d) 13.62%
e) 17.67%

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