Question
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
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:
|
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 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Auditing Cases An Active Learning Approach
Authors: Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt
2nd Edition
0130674842, 978-0130674845
