Question

You have an opportunity to invest in a deal that will make yearly payments forever. These payments will grow at a rate of 5% per year. You will receive your first payment of 8,000 one year from today. Due to the risks associated with this investment, you will require a return of 15%. How much are you willing to pay for this deal today?

Select one:

a. 85,000

b. 80,000

c. 87,500

d. 100,000

.

The firm makes no use of debt and is entirely financed by common stock with a beta of 2. The expected return on the market portfolio is 10% and the risk-free rate is 3%. The required rate of return is

Select one:

a. 16%

b. 17%

c. 15%

d. 10%

.

Answer 1