27) 27) Phillips Equipment has 6,500 bonds outstanding that are selling at 96.5 percent of par. Bonds with similar characteristics are yielding 6.7 percent, pretax. The company also has 48,000 shares of 5.5 percent preferred stock and 75,000 shares of common stock outstanding. The preferred stock sells for $64 a share. The common stock has a beta of 1.32 and sells for $41 a share. The preferred stock has a stated value of $100. The U.S. Treasury bill is yielding 2.2 percent and the return on the market is 10.6 percent. The corporate tax rate is 21 percent. What is the weighted average cost of capital? A) 8.09 percent B) 9.30 percent C) 10.18 percent D) 10.56 percent E) 8.64 percent 28) 28) What is the expected return on a portfolio that is equally weighted between Stocks M and N given the following information? State of Economy Probability of State of Economy Rate of Return if State Occurs Stock M Stock N .18 - .14 .06 .06 -13 Boom Normal Recession .05 A) 5.28 percent B) 6.32 percent C) 6.00 percent D) 6.40 percent E) 5.87 percent 29 29) The of a security divided by the beta of that security is equal to the slope of the security market line if the security is priced fairly. A) nominal return B) expected return C) actual return D) real return E) risk premium