• a.In your own words, define the concept of risk-free rate of return. (5 marks)

• b.For a given company, its cost of equity is always higher than its cost of debt.

  Do you agree with this statement? Explain your answer. (6 marks)

• c.Explain the difference between standard deviation and beta () as measures of risk. (6 marks)

• d.The following table displays information about the shares and bonds of ELA Plc, as well as the market. The percentage figures are annual. Estimate ELA Plcs weighted average cost of capital (WACC) assuming the company wants to raise capital using 30% of debt financing. Show your workings. (13 marks)

Risk-free rate	2%
	1.5
Expected market return	6.5%
Credit risk premium	3.5%
Tax rate	25%