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

question 27

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 $1,000 face value. The bonds mature in 15 years, have a coupon rate of 8 percent, and pay coupons semiannually. The firm's equity has a beta of 2.0, and the expected market return is 15 percent. The tax rate is 35 percent and the WACC is 16 percent. Calculate the risk-free rate.

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

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