1:

Consider the following information about Stocks I and II:

				Rate of Return If State Occurs
State of	Probability of
Economy	State of Economy			Stock I			Stock II
Recession		.25			.06			.29
Normal		.45			.21			.09
Irrational exuberance		.30			.15			.49

The market risk premium is 8 percent, and the risk-free rate is 4 percent. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16. Enter your return answers as a percent. )

The standard deviation on Stock I's return is ( ? ) percent, and the Stock I beta is ( ?) . The standard deviation on Stock II's return is ? percent, and the Stock II beta is (?) . Therefore, based on the stock's systematic risk/beta, Stock (I,or II) is "riskier".

2:

A firm's cost of capital:

Depends upon how the funds raised are going to be spent.

Is independent of the firm's capital structure.

Should be applied as the discount rate for any project considered by the firm.

For a specific project is primarily dependent upon the source of the funds used for the project.

Will decrease as the risk level of the firm increases.

3:

Filer Manufacturing has 8.1 million shares of common stock outstanding. The current share price is $49, and the book value per share is $5. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value of $65 million, has a 8 percent coupon, and sells for 91 percent of par. The second issue has a face value of $50.22 million, has a 8 percent coupon, and sells for 95.4 percent of par. The first issue matures in 10 years, the second in 6 years.

Requirement 1:

(a)	What is Filer's capital structure weight of equity on a book value basis? (Do not round your intermediate calculations.)
	(Click to select)0.26790.27310.27050.24710.2601

(b)	What is Filer's capital structure weight of debt on a book value basis? (Do not round your intermediate calculations.)
	(Click to select)0.73990.70290.77690.76210.7695

Requirement 2:

(a)	What is Filer's capital structure weight of equity on a market value basis? (Do not round your intermediate calculations.)
	(Click to select)0.7876.8269.8191.8112.7482

(b)	What is Filer's capital structure weight of debt on a market value basis? (Do not round your intermediate calculations.)
	(Click to select)0.20180.21880.21240.22090.2231