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a) Consider the following information: State of Economy Boom Bust Probability of State of Economy 0.65 0.35 Rate of Return if State Occurs Stock A
a) Consider the following information: State of Economy Boom Bust Probability of State of Economy 0.65 0.35 Rate of Return if State Occurs Stock A Stock B Stock C 0.07 0.15 0.33 0.13 0.03 0.06 What is the expected return on an equally weighted portfolio of these three stocks? b. What is the variance of a portfolio invested 20% each in A and B and 60% in C? T b) Financial analyst is interested to determine the cost of debt of a firm. The firm has a debt issue outstanding with 23 years to maturity that is quoted at 97% of face value. The issue makes semiannual payments and has an embedded cost of 5% annually. Assume the par value of the bond is $1,000. What is the company's pre-tax cost of debt? If the tax rate is 35%, what is the after-tax cost of debt
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