Expected return-what must the risk-free rate be

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Reference no: EM132045963

1. A stock has an expected return of 10 percent, its beta is 1.50, and the expected return on the market is 8 percent. What must the risk-free rate be?

2. Suppose a firm pays total dividends of $806,000 out of net income of $2.6 million. What would the firm’s payout ratio be? (Round your answer to 2 decimal places.)

3. It is January 2nd and senior management of Digby meets to determine their investment plan for the year. They decide to fully fund a plant and equipment purchase by issuing 75,000 shares of stock plus a new bond issue. Assume the stock can be issued at yesterday’s stock price ($33.55) and leverage changes to 2.8. Which of the following statements are true? Select all that apply.

- Total liabilities will be $123,713,264

- The total investment for Digby will be $206,542,591

- Total Assets will rise to $217,831,113

- Working capital will remain the same at $10,349,434

- Equity will be $80,313,076

- Digby will issue stock totaling $2,516,250

Reference no: EM132045963

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