Intro Treasury yield curve: Time to maturity 1 year 3 years 5 10 years years Yield to maturity 0.4% 1.4% 2.6% 4.8% Equity premium: Arithmetic average Geometric average 2% 4% Vis-a-vis Treasury bills Vis-a-vis Treasury bonds 2% 0.5% Part 1 Attempt 1/10 for 10 pts. You're considering a risk-free projects that will create cash flows over 20 years. If you can use only one discount rate, what is the appropriate cost of capital? 0.048 Correct Since it's risk-free and long-term, we should use the 10-year Treasury yield: Cost of capital = T-bill yield + Term premium = YTM10 = 0.048 Part 2 Attempt 2/10 for 9.5 pts. You're considering a project that is about as risky as the stock market and will create cash flows indefinitely. If you can use only one discount rate, what is the appropriate cost of capital? 3+ decimals Submit Part 3 1 Attempt 2/10 for 9.5 pts. You're considering a project that is right between the stock market and Treasuries with respect to risk. It will create cash flows for 10 years. If you can use only one discount rate, what is the appropriate cost of capital? 4+ decimals Submit