CONTEMP. FINANCIAL MGT.-W/MINDTAP V3
14th Edition
ISBN: 9780357292839
Author: MOYER
Publisher: CENGAGE L
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Chapter 13, Problem 7QTD
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To discuss: The assumptions needed in determining the proposition that a company’s cost of capital is independent of its structure of capital.
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Assume an investor deposits $116,000 in a professionally managed account. One year later, the account has grown in value to $136,000 and the investor withdraws $43,000. At the end of the second year, the account value is $107,000. No other additions or withdrawals were made. During the same two years, the risk-free rate remained constant at 3.94 percent and a relevant benchmark earned 9.58 percent the first year and 6.00 percent the second. Calculate geometric average of holding period returns over two years. (You need to calculate IRR of cash flows over two years.)
Round the answer to two decimals in percentage form.
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CONTEMP. FINANCIAL MGT.-W/MINDTAP V3
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