You are considering an investment in a security with a beta, Financial Management

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You are considering an investment in a security with a beta

1. You are considering an investment in a security with a beta of 1.4. Which of the following return on investments (ROIs) should your client earn?

a. ROI equal to the risk-free rate plus the overall market’s risk premium.

b. ROI equal to the risk-free rate plus 140% of the overall market’s risk premium.

c. ROI equal to 3-month Treasury Bill rate of return (i.e., risk-free rate).

d. ROI equal to the risk-free rate plus 60% of the overall market’s risk premium.

2. The capital structure for the CR Corporation includes bonds valued at $5,500 and common stock valued at $11,000. If CR has an after-tax cost of debt of 6%, and a cost of common stock of 16%, what is its WACC?

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