1. Gilbert & Sons is a levered firm. It has 300,000 shares of stock outstanding with a market price of $32 per share. The company also has $6.6 million of debt outstanding that sells at par. The pre-tax cost of debt is 9 percent and the unlevered cost of capital is 12 percent. What is the cost of equity if the tax rate is 35 percent?
A) 12.00 percent B) 12.79 percent C) 13.34 percent D) 14.84 percent
2. Bond portfolio immunization techniques balance _______ and ______ risk.
Price, reinvestment
Price, liquidity
Credit, reinvestment
Credit, liquidity