1. A company’s common stock has a market price of $13 and a beta of 1.12. The return on U.S. Treasury bonds is 2.5% and the market risk premium is 6.8%. Based on this information, what is this company’s cost of equity?
a) 7.32%
b) 8.57%
c) 8.72%
d) 9.30%
e) 10.12%
2. Which of the following is correct?
a. According to the CAPM (capital asset pricing model), the intercept of the security market line should be equal to zero
b. According to the CAPM (capital asset pricing model), the intercept of the security market line should be equal to the expected risk premium on the market portfolio
c. According to the CAPM (capital asset pricing model), the intercept of the security market line should be equal to the risk-free rate
d. According to the CAPM (capital asset pricing model), the intercept of the security market line should be equal to the expected return on the market portfolio
3. How much do you have to invest today at an annual rate of 9%, if you need to have $5,000 six years from today?
a. $3,150.85
b. $4,236.75
c. $7,934.37
d. $2,735.23
4. Comparable trades valuation infers value from the prices at which comparable public firms trade
True
False