Confidence interval for the estimated beta

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Reference no: EM132051102

You are analyzing Tiffany, an upscale retailer and find that the regression estimate of the firm's beta is 1; the standard error for the beta estimate is 0.25. The company has a debt/assets ratio of 20% and is subject to 40% tax rate. Assume also that risk free rate is 6% and the market risk premium is 5.5%.

1- What is the 95% confidence interval for the estimated beta?

a- -0.25 to 2.25

b- 0 to 2

c- 0.25 to 1.75

d- 0.5 to 1.5

e- 0.75 to 1.25

2- Assume Tiffany is rated BBB and that the default spread for BBB rated firm is 1% above the risk free, what is the company's cost of capital?

a- 8.70%

b- 9.50%

c- 10.60%

d- 11.71%

e- 12.22%

Reference no: EM132051102

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