1. Assume the risk-free rate is %4 and the expected rate of return on the market is 15%.
A stock has an expected return of %7. What is its beta?
2. Assume the risk-free rate is %4 and the expected rate of return on the market is 15%.
A share of stock is now selling for $70. It will pay a dividend of $8 per share at the end of the year. Its beta is 1. What do investors expect the stock to sell for at the end of the year?
3. The cost of capital for an all-equity-financed company that pays no dividends is zero.
A. True
B. False
4. The Pecking Order Theory of capital structure rests on an assumption of
A. agency costs
B. barriers to entry
C. asymmetric information
D. tax shields and cost of financial distress