A Firm Has a Debt-To-Equity Ratio of

question 53

Multiple Choice

A firm has a debt-to-equity ratio of .62.Its pretax cost of debt is 7.1 percent and its unlevered cost of capital is 13.8 percent.What is its levered cost of equity if there are no taxes or other imperfections?

• A)9.65%
• B)15.55%
• C)18.20%
• D)17.95%
• E)20.45%

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Definitions:

Harry Markowitz

An American economist known for his pioneering work in modern portfolio theory, emphasizing diversification and risk management in investing.

Interest-Rate Sensitivity

A measure of how much the value of an investment or a portfolio will change in response to a change in interest rates.

Bond Prices

The cost at which a bond is trading, which can fluctuate based on interest rates, the bond's credit quality, and other factors.

Coupon Rate

The per annum interest rate of a bond, depicted as a percentage of its principal amount.