A Firm Has 4,000,000 Shares of Common Stock Outstanding, Each

question 96

Multiple Choice

A firm has 4,000,000 shares of common stock outstanding, each with a market price of $12.00 per share. It has 25,000 bonds outstanding, each selling for $980. The bonds mature in 20 years, have a coupon rate of 9 percent, and pay coupons semiannually. The firm's equity has a beta of 1.5, and the expected market return is 15 percent. The tax rate is 30 percent and the WACC is 15 percent. What is the risk-free rate?

• A)6.28 percent
• B)8.00 percent
• C)9.22 percent
• D)19.36 percent

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Definitions:

Supply

Represents the total amount of a product or service available to consumers in a market at any given time.

Equilibrium Price

The price at which the quantity of goods supplied equals the quantity of goods demanded in the market.

Quantity Demanded

The amount of a product that consumers are willing and able to purchase at a given price over a specified period.

Quantity Supplied

The total amount of a good or service that producers are willing and able to sell at a given price over a specified period of time.