Assignment 1: Risk and the Cost of Capital
General Questions: Respond to the following questions thoroughly, in 150-300 words for each question. Use your textbook as your first and major reference.
Differentiate between the real risk free rate and the nominal risk free rate of interest. Which should be used when used to assign value or cost to an asset? Why?
What is the beta coefficient and how is it used to adjust for different levels of risk?
Explain why the cost of debt is typically different than the cost of equity. Give examples and explain your answers.