Expected return or the cost of equity capital for the firm

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Reference no: EM132005958

1. Bunge, Inc. issued a 25-year bond which is callable in 17 years; the face value of the bond is $1000. It has a coupon rate of 6.75% payable annually, has a call premium of $105, and is currently selling for $1012. What is the yield to call? (Caution: You want to find out the rate of return earned till the bond "called" back, not till the "maturity" of the bond.)

6.82%.

6.97%.

6.63%.

6.65%.

2. If a business has no liquid assets then negative cash flow from assets can not be sustained if the business does not have access to outside capital.

True or False

3. The World Tobacco Company is expected to pay a dividend of $5 per share at the end of year 1(D1) and the dividends are expected to grow at a constant rate of 8% forever. If the current price of the stock is $25 per share, calculate the expected return or the cost of equity capital for the firm.

20%.

28%.

25%.

32%.

Reference no: EM132005958

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