Question 13 1 pts The risk-free rate is 4.6%, the market risk premium is 5%, and

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Question 13 1 pts

The risk-free rate is 4.6%, the market risk premium is 5%, and the stock’s beta is 1.3. What is the cost of common stock (Ke)?

Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

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Question 14 1 pts

The 8 percent annual coupon bonds of the ABC Co. are selling for $880.76. The bonds mature in 10 years. The bonds have a par value of $1,000 and payments are made semi-annually? What is the before-tax cost of debt?

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

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Question 15 1 pts

ABC Industries will pay a dividend of $1 next year on their common stock. The company predicts that the dividend will increase by 5 percent each year indefinitely. What is the firm’s cost of equity if the stock is selling for $30 a share?

Enter your answer in percentages rounded off to two decimal points. DO not enter % in the answer box.

Explanation / Answer

Question 13:

Risk Free rate = 4.6%

Market Risk Premium = 5%

Beta of Stock = 1.3

Cost of Equity = Risk Free Rate + Beta * Market Risk Premium

Cost of Equity = 4.6% + 1.3 * 5%

Cost of Equity = 11.10

Question 14:

Coupon Payment = 8% * 1,000 = 80

Semi Annual Coupon Payment = 80/ 2 = 40

N = 10 years

Number of Semi Annual Periods = 10 * 2 = 20

FV = 1,000

PV = 880.76

Using Financial Calculator:

I = 4.953004

YTM = 4.953004 * 2

YTM = 9.91

Question 15

D1 = 1

g = 5%

Price = 30

Price = D1/ (Required rate - growth rate)

30 = 1/ (k - 5%)

k = 1/ 30 + 5%

k = 8.33

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