1 answer

Determine the expected return of a company's stock given a risk free rate of 7%, an...

Question:

Determine the expected return of a companys stock given a risk free rate of 7%, an expected market return of 12%, a market r
Which of the following is NOT a cost to the firm of increasing debt financing? the cost of common equity will decrease. Ostoc
Determine the expected return of a company's stock given a risk free rate of 7%, an expected market return of 12%, a market risk premium of 5% and a company Beta of 1.5. O 0.115 O 0.125 O 0.135 O 0.145
Which of the following is NOT a cost to the firm of increasing debt financing? the cost of common equity will decrease. Ostockholders will demand a higher return. investors will demand a higher interest rate on debt. the risk to common stockholders increases.

Answers

A. Correct Answer 0.145

As per CAPM model

Expected retun = Rf + Beta(Rm-Rf)

where Rf is return from risk free security

Rm is retun from market

Expected return = 0.07 + 1.5 ( 0.12 - 0.7 ) = 0.145

B. Correct Answer The cost of common equity will decrease.

.

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