Question
Please explain how to get each of these answers. Show work. 21. Amazon has a Beta of 2. The risk-free rate is 4% and the
Please explain how to get each of these answers. Show work.
21. Amazon has a Beta of 2. The risk-free rate is 4% and the market return is 9%. What is Amazons risk premium and expected rate of return? Answer: 10%, 14%
22. Calpers Pension Fund offers an annuity to CSU, Chico retiring professors. For a deposit of $150,000 into this fund at age 65, the fund will pay the retiring professor $1600 a month for 25 years. What is the EAR on this annuity? Answer: 12.95%
23. Joannas Fabric's cost of debt is 6%, and it's cost of equity 10%. The company is financed with $300 million debt and with $700 equity. If Joannas tax rate is 35% then what is the firms cost of capital (WACC)? Answer: 8.17%
24. Chester Fluffy Pants maintains an operating profit margin of 6%, asset turnover ratio of 4, debt to equity ratio of 1.5 and a debt burden ratio 75%. What are Chester fluffy pants ROA? Answer: 24%
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