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

question 74

Multiple Choice

A firm has 5,000,000 shares of common stock outstanding, each with a market price of $10.00 per share. It has 55,000 bonds outstanding, each selling for $990 with a $1000 face value. The bonds mature in 15 years, have a coupon rate of 8%, and pay coupons semi-annually. The firm's equity has a beta of 2.0, and the expected market return is 15%. The tax rate is 35% and the WACC is 16%. Calculate the risk-free rate.

• A) 27.68%
• B) 1.79%
• C) 2.32%
• D) 2.12%

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