1. A stock has an expected return of 17 percent, its beta is 1.3, and the expected return on the market is 14 percent. What must the risk-free rate be? (Do not round your intermediate calculations.)
4.16%
-1.20%
4.20%
4.00%
3.80%
2. Fama's Llamas has a weighted average cost of capital of 11.5 percent. The company's cost of equity is 17.5 percent, and its pretax cost of debt is 8 percent. The tax rate is 31 percent. What is the company's target debt-equity ratio? (Do not round your intermediate calculations.)
1.0535
1.0435
0.9532
1.0033
1.7143