1. In December 1995, Boise Cascades stock had a beta of 0.95. The Treasury bill rate at the time was 5.8 percent, and the Treasury bond rate was 6.4 percent. The firm had debt outstanding of $1.7 billion and a market value of equity of $1.5 billion; the corporate marginal tax rate was 36 percent.

a. Estimate the expected return on the stock for a short-term investor in the company.

b. Estimate the expected return on the stock for a long-term investor in the company.

c. Estimate the cost of equity for the company.

In the problems below, use 5.5% as your market risk premium where none is specified.

1. In December 1995, Boise Cascades stock had a beta of 0.95. The Treasury bill rate at the time

was 5.8 percent, and the Treasury bond rate was 6.4 percent. The firm had debt outstanding of

$1.7 billion and a market value of equity of $1.5 billion; the corporate marginal tax rate was 36

percent.

a. Estimate the expected return on the stock for a short-term investor in the company.

b. Estimate the expected return on the stock for a long-term investor in the company.

c. Estimate the cost of equity for the company.