Reference no: EM132807823

Problem 1: The expected market rate of return is 17% and the risk-free rate is 9%. If the beta for a firm's stock is 0.85, then the cost of equity capital for the firm is:

i) 25.00%
ii) 23.45%
iii) 17.00%
iv) 15.80%
v) 9.00%

Problem 2: A firm paid a dividend of $2 per share yesterday and expects the growth rate of dividends to be 5% in the future. If the stock beta is 1.25, the risk-free rate 4% and the return on the market portfolio 15%, the current price of the common share is:

i) $16.47
ii) $15.68
iii) $11.83
iv) $11.27
v) $10.67