What is the dominant risk factor for investors who hold


1. Contrail Air, Inc. is trying to determine its cost of debt. The company has an outstanding debt issue with 18 years to maturity that is quoted at 97.00% percent of face value. The issue makes semiannual payments and has a coupon rate of 10.00% percent. What is the pretax cost of debt?

Settlement: 01/01/2000

Maturity: 01/01/2018

Price (% of par ): 97   

Coupon rate: 10%

Payments per year: 2   

Tax rate: 34%

2. What is the dominant risk factor for investors who hold diversified portfolios of assets?

a) Beta

b) Coefficient of variation

c) Standard deviation

d) Correlation coefficient

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