Part 1:

A portfolio consists of 39 percent Stock A, 58 percent Stock B, and 3 percent Stock C. What is the portfolio expected return given the following:

State of Economy	Probability of State of Economy	Stock A Returns	Stock B Returns	Stock C Returns
Normal	0.65	31%	24%	56%
Recession	0.35	2	49	24

26.03 percent

27.42 percent

23.72 percent

27.95 percent

Part 2:

The 14.50 percent preferred stock of Ajax Unlimited is selling for $93.50 a share. What is the cost of preferred stock if the risk-free rate is 4.55 percent?

18.70 percent

15.51 percent

19.31 percent

14.57 percent

Part 3:

Marvins Interiors issued 10-year bonds 2 years ago. The bonds have a face value of $1,300, a 8.0 percent, semiannual coupon, and a current market price of $1,139. What is the pre-tax cost of debt?

11.57 percent

12.01 percent

11.06 percent

10.31 percent