Question
Please answer both parts: A. Stock R has a beta of 1.7, Stock S has a beta of 0.95, the expected rate of return on
Please answer both parts:
A. Stock R has a beta of 1.7, Stock S has a beta of 0.95, the expected rate of return on an average stock is 10%, and the risk-free rate is 5%. By how much does the required return on the riskier stock exceed that on the less risky stock? Do not round intermediate calculations. Round your answer to two decimal places.
B. LL Incorporated's currently outstanding 9% coupon bonds have a yield to maturity of 6.6%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 25%, what is LL's after-tax cost of debt? Round your answer to two decimal places.
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