A Firm Has 1,000,000 Shares of Common Stock Outstanding, Each

question 18

Multiple Choice

A firm has 1,000,000 shares of common stock outstanding, each with a market price of $10.00 per share. It has 15,000 bonds outstanding, each selling for $900 (with a face value of $1,000) . The bonds mature in 15 years, have a coupon rate of 10 percent, and pay coupons annually. The firm's equity has a beta of 1.5, and the expected market return is 20 percent. The tax rate is 21 percent and the WACC is 16 percent. What is the risk-free rate?

• A) 9.16 percent
• B) 11.4 percent
• C) 4.8 percent
• D) 16.0 percent

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Definitions:

Left Brain

Relates to the hemisphere of the brain that is typically associated with analytical, logical, and language tasks.

Specialised

Refers to a focus or concentration on a particular area of knowledge or activity, often indicating expertise.

Junction

The point where two or more things converge or are joined together, often referring to roadways, neurons, or other connections.

Neurons

Specialized nerve system cells that convey information to other neurons, muscles, or glands.