Question 13

1. Suppose your firm has total assets of $1, a book value of stock of $.50, and a book value of debt of $.50. The yield to maturity on your bonds outstanding is currently 6%. The beta of your firm with the market is 1.8. The current risk-free rate is 4%, and you estimate the market risk premium to be 4%.

   What is your firms cost of debt? (Report your answer as a percent: i.e. 6.5% = 6.5)