Question 10. The risk-free interest rate is r = 5% and the expected return of the market rM = 10%. The debt of a given company has beta D = 0.2. The company issues a zero coupon bond for one year with a nominal interest rate of 6% and the bond is sold at par. There is some possibility of bankruptcy of the company the following year and during bankruptcy the debts were not fully paid. Which of the following which of the statements is most correct if based on the CAPM? a. The bond is overpriced based on the CAPM b. The bond is correctly priced based on the CAPM c. The bond is underpriced based on the CAPM d. Pricing relative to the market line depends on bankruptcy probability and bankruptcy requirements

Question 6. The balance sheet of a company is as follows in millions of ISK:

assets 5000

debt 2000

share capital 1000

other equity 2000

total equity of 3000

The company's debts bear 6% interest. The company's share capital is listed on the market and is exchange rate of the shares ISK 4.8 per share. Each share has a nominal value of one krona. The company's debts are also listed on the market and the yield on the company's bonds is 4%. The debts have an average term about 5 years and the market value of the debt is therefore 2,200 million. The company's beta is 1.0 and return of the market(rm) 10%. What is the company's capital cost before taxes? a. 7.60% b. 8.11% c. 8.40% d. 8.74%

Question 12 Which of the following is the best explanation that shareholders might want higher dividends?

a. Dividends increase the value of the share capital

b. The value of a company is determined by the company's future dividend payments

c. Increased tax benefits for shareholders

d. Dividend payments reduce the temptation problem of managers