1. Calculating Investment Returns
You bought one of Great White Shark Repellant Co.’s 9 percent coupon bonds one year ago for $790. These bonds make annual payments and mature 8 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 13 percent. If the inflation rate was 3.7 percent over the past year, what was your total real return on investment?
a.17.88%
b.10.10%
c.9.62%
d.9.72%
e.-1.36%
2. Finding the Target Capital Structure
Fama's Llamas has a weighted average cost of capital of 10.5 percent. The company's cost of equity is 17 percent, and its pretax cost of debt is 8 percent. The tax rate is 34 percent. What is the company's target debt-equity ratio? (Do not round your intermediate calculations.)
a.1.2452
b.1.3075
c.1.183
d.2.6
e.1.295