A Firm Has 5,000,000 Shares of Common Stock Outstanding, Each

question 77

Multiple Choice

A firm has 5,000,000 shares of common stock outstanding, each with a market price of $8.00 per share. It has 25,000 bonds outstanding, each selling for $1,100 with a $1,000 face value. The bonds mature in 12 years, have a coupon rate of 9 percent, and pay coupons semiannually. The firm's equity has a beta of 1.4, and the expected market return is 15 percent. The tax rate is 21 percent and the WACC is 14 percent. Calculate the risk-free rate.

• A) 3.90 percent
• B) 15.27 percent
• C) 20.18 percent
• D) 1.19 percent

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Definitions:

Indifference Curve

A graph showing combinations of goods between which a consumer is indifferent, reflecting their preferences and trade-offs.

Total Utility

The overall satisfaction or benefit that a consumer derives from consuming a certain quantity of goods or services.

Preferences

The subjective tastes and desires of consumers that influence their choices among various goods and services.

Apples

In economic and financial contexts, this term is often used metaphorically to represent the comparison of similar items or investments, as in "comparing apples to apples."