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

question 121

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 35 percent and the WACC is 14 percent. Calculate the risk-free rate.

• A)2.05 percent
• B)15.27 percent
• C)20.18 percent
• D)1.19 percent

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Definitions:

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