By how much will the cost of equity increase

Assignment Help Financial Management

Reference no: EM132021559

1. A firm has a current beta of 1.08. The market risk premium is 7.90% and the risk-free rate of return is 3.20%. By how much will the cost of equity increase if the company expands its operations such that the company beta rises to 1.16?

a. .63%

b. 3.12%

c. .88%

d. 2.60%

e. 3.83%

2. If a coupon bond has a face value of $1,000, I don't understand why anyone who owns the bond would sell it for less than $1,000. After all, if the owner holds the bond to maturity, the owner knows he or she will receive $1,000, so why sell for less? Answer the student's question.

A. If the market interest rate has decreased since purchasing the bond, the price of the bond will have risen relative to what you paid for it and you will realize a capital gain.

B. Bonds are sold at price that is significantly less than the face value of the bond, and then the price rises over time. Thus, you can always sell the bond for more than you paid for it and realize a capital gain.

C. If the market interest rate has increased since purchasing the bond, the price of the bond will have risen relative to what you paid for it and you will realize a capital gain.

D. None of the above.

Reference no: EM132021559

Questions Cloud

Main determinants of economic growth : What are the 3 main determinants of economic growth? Do we have to give from both demand and supply side?

Change through persuasion : Garvin and Michael A. Roberto " Change Through Persuasion " reflection paper which identifies the main points of the article and your thoughts.

An employer could simply pay all types the same amount : a) An employer could simply pay all types the same amount. How much would an employer pay?

Analyzing social problems and social policy : You might think that social problems only affect those who suffer from the problem directly, but they actually have much broader impact.

By how much will the cost of equity increase : By how much will the cost of equity increase if the company expands its operations such that the company beta rises to 1.16?

Rise of julius caesar : What factors that were contributed to the rise of Julius Caesar and do you believe his efforts to establish a dictatorship in Rome in the first century B.C.E.

Describes the insurance company profit : What best describes the insurance company's profit or (loss) as of 12/31/2007 after the liability is paid?

Discuss the effects of the social welfare policies : Post an explanation of the effects of the social welfare policies presented in the case study you selected on Luisa or Tessa. Be specific and reference.

Proposals to reform unemployment insurance : Consider the following two proposals to reform unemployment insurance. Briefly explain the arguments for and against each reform.

User Account

All Pages