1. Do uninformed investors trade too much? Discuss how uninformed investors use the CAPM and how their behaviors deviate.
2. Suspect Corp. issued a bond with a maturity of 25 years and a semiannual coupon rate of 8 percent 3 years ago. The bond currently sells for 93 percent of its face value. The book value of the debt issue is $45 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 13 years left to maturity; the book value of this issue is $45 million and the bonds sell for 53 percent of par. The company’s tax rate is 35 percent.
1. The company’s total book value of debt?
2. What is the company’s total market value of debt
3. What is your best estimate of the aftertax cost of debt