5. Stock X has a beta of 1.5 and expected return of 15.5%. The market risk premium is 9%.

If the risk-free rate is 2% and Stock Y has a beta of 0, what do you know about the expected return of Stock Y?

Group of answer choices

Stock Y expected return is 2%

Stock Y expected return is 11%

Stock Y expected return is 9%

Stock Y expected return is 0%

6. Uriah Inc. is financed with 100% equity and 0% debt in market value terms. In a capital market with taxes but no other imperfections (no bankruptcy costs, no financing frictions), if Uriah produces substantial positive profits and decides to issue new bonds to repurchase shares of stock, what will be the most likely impact to the value of the firm?

Group of answer choices

Firm value is unchanged

Firm value increases

Firm value decreases