10) A firm has a debt-to-equity ratio of 2:1.

The firms debt beta is 0.6.

Five-year government bonds yield 5% pa with a coupon rate of 3% pa. The market's expected dividend return is 2% pa and its expected capital return is 8% pa.

The firm stocks next dividend is expected to be $2, paid one year from now. Dividends are expected to be paid annually and grow by 3% pa forever. The current stock price $10.

The corporate tax rate is 30%. Assume a classical tax system.

Which statement is NOT correct?

a.

The firms after-tax WACC is 11.4% pa.

b.

The beta of the firm's equity is 3.6.

c.

The beta of the firms assets is 2.1.

d.

The expected return on equity is 23% pa.

e.

The expected return on debt is 8% pa.

11)

You buy a stock from the capital market. If the capital market is semi-strong efficient, which of the following statements is NOT correct?

a.

The technical analysis of publicly available information will not lead to any abnormal returns.

b.

The stock is fairly priced.

c.

Stock prices reflect all publicly available information.

d.

You cannot earn any abnormal returns above the required return by trading on public information.

e.

Past stock prices can be used to predict future stock prices.