Peter's Construction Co. has 80,000 bonds outstanding that are selling at par value. Bonds with similar characteristics are yielding 8.5 percent. The company also has 4 million shares of common stock outstanding. The stock has a beta of 1.1 and sells for $40 a share. The U.S. Treasury bill rate i.e., risk free rate is 4 percent and the market return is 12 percent. Peter's tax rate is 35 percent. What is Peter's weighted average cost of capital if the proportion of debt is 33 percent and the common stock equity is 67 percent?

Select one: a. 9.10 percent b. 11.30 percent c. 7.30 percent d. 10.10 percent e. 10.60 percent

Suppose a factor model is appropriate to describe the returns on a stock and the two factors involved in this model are Growth in GNP and Inflation. For Growth in GNP factor, the Beta is 1.45, Expected Value is 3.2 percent and Actual value is 3.8 percent, and for Inflation factor, the Beta is -1.25, Expected Value is 4.2 percent and Actual value is 4.8 percent. What is the systematic risk of the return?

Select one: a. 2.5 percent b. 0.12 percent c. 0.25 percent d. 0.35 percent e. 0.18 percent

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