ABC Inc. issued twelve-year, 6 percent semi-annual coupon bonds at pa

1. ABC Inc. issued twelve-year, 6 percent semi-annual coupon bonds at par. Today, the bonds are priced at $1112. What is the firm’s after-tax cost of debt if the tax rate is 30%?

2. If you receive $1,067 at the end of each year for the first three years and $5,304 at the end of each year for the next three years. What is the net present value of this cash flow stream? Assume interest rate is 9.2%.

3. The nominal rate is 16% compounded monthly. Compute the effective rate.

4. The risk-free rate is 6.2%, the market risk premium is 8.7%, and the stock’s beta is 1.31. What is the cost of common stock (Ke)?

5. You have a portfolio of two risky stocks which turns out to have no diversification benefit. The reason you have no diversification is the returns:
Answer
move perfectly opposite of one another.
are too small.
are completely unrelated to one another.
move perfectly with one another.
are too large to offset.