Use the Following Information to Answer the Question(s)below

question 97

Multiple Choice

Use the following information to answer the question(s) below. The risk-free rate of interest is 3% and the market risk premium is 5%.
-The cost of capital for the oil exploration division is closest to:

• A)6.0%.
• B)7.0%.
• C)8.5%.
• D)10.0%.

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Definitions:

GIC

A Guaranteed Investment Certificate, particular to the Canadian market, ensures investors a promised rate of return within a set duration.

Semi-annual Interest

Interest that is calculated and paid twice a year on an investment or loan.

Invested

The deployment of funds with the intention of acquiring income or profit.

Regular-interest

Regular interest refers to the consistent periodic return earned on an investment or paid on a loan as determined by the interest rate.