Question

1)

You want to create a portfolio equally as risky as the market,
and you have $2,600,000 to invest. Given this information, fill in
the rest of the following table: **(Do not round intermediate
calculations and round your answers to 2 decimal places, e.g.,
32.16.)**

Asset | Investment | Beta | |||

Stock A | $ | 494,000 | 1.40 | ||

Stock B | $ | 936,000 | 1.50 | ||

Stock C | $ | ? | 1.60 | ||

Risk-free asset | $ | ? | ? |

2) The Hudson Corporation’s common stock has a beta of 1.5. If the risk-free rate is 6 percent and the expected return on the market is 10 percent, what is the company’s cost of equity capital?

Cost of equity capital ____ %

3)Suspect Corp. issued a bond with a maturity of 18 years and a
semiannual coupon rate of 8 percent 3 years ago. The bond currently
sells for 92 percent of its face value. The company’s tax rate is
35 percent.

**a.** What is the pretax cost of debt? **(Do
not round intermediate calculations. Enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)**

Pretax cost of debt
%

**b.** What is the aftertax cost of debt? **(Do
not round intermediate calculations. Enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)**

Aftertax cost of debt
%

**c.** Which is more relevant, the pretax or the
aftertax cost of debt?

Answer #1

1)

You want to create a portfolio equally as risky as the market,
and you have $500,000 to invest. Information about the possible
investments is given below: Asset Investment Beta Stock A $ 85,000
.80 Stock B $165,000 1.15 Stock C 1.40 Risk-free asset a. How much
will you invest in Stock C? (Do not round intermediate calculations
and round your answer to 2 decimal places, e.g., 32.16.) b. How
much will you invest in the risk-free asset? (Do not round...

You want to create a portfolio equally as risky as the market,
and you have $1,000,000 to invest. Given this information, fill in
the rest of the following table: (Do not round intermediate
calculations and round your answers to 2 decimal places, e.g.,
32.16.)
Asset Investment Beta
Stock A $165,000 0.80
Stock B $350,000 1.09
Stock C ? 1.27
Risk-Free Asset ? ?

United Parcel Service issued a bond with 30 years to maturity
and a semiannual coupon rate of 6 percent 4 years ago. The bond
currently sells for 95 percent of its face value. The company’s tax
rate is 35 percent.
a.
What is the pretax cost of debt? (Do not round
intermediate calculations. Enter your answer as a percent rounded
to 2 decimal places, e.g., 32.16.)
Pretax cost of debt
%
b.
What is the aftertax cost of debt? (Do...

Suspect Corp. issued a bond with a maturity of 18 years and a
semiannual coupon rate of 8 percent 3 years ago. The bond currently
sells for 92 percent of its face value. The company’s tax rate is
35 percent.
a. What is the pretax cost of debt? (Do
not round intermediate calculations. Enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
Pretax cost of debt
%
b. What is the aftertax cost of debt?...

Jiminy’s Cricket Farm issued a 30-year, 5 percent semiannual
coupon bond 6 years ago. The bond currently sells for 106 percent
of its face value. The company’s tax rate is 25 percent.
a.
What is the company’s pretax cost of debt? (Do not round
intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
b.
What is the company’s aftertax cost of debt? (Do not
round intermediate calculations and enter your answer as a...

You want to create a portfolio equally as risky as the market,
and you have $2,700,000 to invest. Given this information, fill in
the rest of the following table: (Do not round intermediate
calculations. Round your answers to the nearest whole number, e.g.,
32.)
Asset
Investment
Beta
Stock A
$ 459,000
1.00
Stock B
$ 783,000
1.40
Stock C
$
1.60
Risk-free asset
$

You want to create a
portfolio equally as risky as the market, and you have $1,000,000
to invest. Given this information, fill in the rest of the
following table: (Do not round intermediate calculations.
Round your answers to the nearest whole number, e.g.,
32.)
Asset
Investment
Beta
Stock A
$ 195,000
.90
Stock B
$ 340,000
1.15
Stock C
$
1.29
Risk-free asset
$

3
Shanken Corp. issued a 15-year, 4.9 percent semiannual bond 4
years ago. The bond currently sells for 96 percent of its face
value. The company's tax rate is 24 percent.
a.
What is the pretax cost of debt? (Do not round
intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
b.
What is the aftertax cost of debt? (Do not round
intermediate calculations and enter your answer as a percent
rounded to...

Shanken Corp. issued a 25-year, 5.1 percent semiannual bond 3
years ago. The bond currently sells for 103 percent of its face
value. The company's tax rate is 21 percent.
a. What is the pretax cost of debt? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
b. What is the aftertax cost of debt? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2...

You want to create a portfolio equally as risky as the market,
and you have $900,000 to invest. Consider the following
information:
Asset
Investment
Beta
Stock A
$180,000
0.90
Stock B
$180,000
1.10
Stock C
1.55
Risk-free asset
Required:
(a)
What is the investment in Stock
C? (Do not round your intermediate
calculations.)
(b)
What is the investment in
risk-free asset? (Do not round your intermediate
calculations.)

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