BBB Inc. issues 1,000 bonds and 15,000 shares of equity. If BBB's systemic risk is 1.2. The riskless rate is 2% and the market expected return is 8%.

a. What is BBB's expected return? (5')

b. If BBB just paid a dividend of $1 and its dividend is expected to grow at a constant rate of 5%. Determine the stock price today using the required return calculated in part a. (10')

c. Each bond of BBB is sold at $1000 and matures 20 years later. The coupon rate is 8%. What is the yield to maturity? (5')

d. Given the tax rate is 18%, what is BBB's weighted average cost of capital? (10')