1.RON Ltd has the following capital structure components:

• Five million shares issued with a current market price of 9. Equity holders require a 10% return.
• $10 million face value of Corporate bonds outstanding. These bonds pay an annual coupon of 6% and currently trade at a yield to maturity of 6%.

If the firm faces a corporate tax rate of 30%, compute RON Ltd's Weighted Average Cost of Capital (WACC). Enter your answer indecimalform to FOUR decimal places. For example 10.34%, would be entered as 0.1034

2.Which of the following statements is FALSE?

a. If the market portfolio is not efficient, then a portfolio of small stocks will likely have positive alphas.

b. A momentum strategy is one where you buy stocks that have had low past returns and (short) sell stocks that have had high past returns.

c. Over the years since the discovery of the CAPM, it has become increasing clear to researchers and practitioners alike that forming portfolios based on market capitalization, book-to-market ratios, and past returns, one can construct trading strategies that have a positive alpha.

d. Portfolios containing firms with the highest realized returns over the previous six months have positive alphas over the next six months.

3.Assume that the economy has three types of people.20% are fad followers, 75% are passive investors, and 5% are informed traders.The portfolio consisting of all informed traders has a beta of 1.4 and an alpha of 3.8%.The market has an expected return of 10% and the risk-free rate is4%.

What is the alpha for the fad followers?Enter your answer as a percentage to two decimal places (i.e. 0.12% rather than 0.0012; the percent sign is not necessary).