Equity cost of capital, Using the information, assume you

Equity cost of capital

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Reference no: EM1352190

Stock Price/Share ($) Number of shares outstanding (millions)
A 10 10
B 20 12
C 8 3
D 50 1
E 45 20

1) Using the data, suppose you are holding a market portfolio and have invested $12,000 in Stock C.

a) How much have you invested in Stock A?
b) How many shares of Stock B do you hold?
c) If the price of Stock C suddenly drops to $4 per share, what trades you need to make to maintain a market portfolio?

2) Suppose the market portfolio has and expected return of 10% and a volatility of 20%, while Microsoft's stock has a volatility 30%.

a) Given its higher volatility, should we expect Microsoft to have and equity cost of capital that is higher that 10%?
b) What would have to be true for Microsoft's equity cost of capital to be equal to 10%?

Reference no: EM1352190

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