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The Bank of Loans uses the following rating scheme to classify the riskiness of its customers. Risk Class Prime High grade Upper medium grade
The Bank of Loans uses the following rating scheme to classify the riskiness of its customers. Risk Class Prime High grade Upper medium grade Risk Premium (%) .05 1.0 1.5 Lower medium grade 2.0 Speculative: Non-investment grade 4.0 Speculative: Highly 6.0 Substantial risks 9.0 12.0 Extremely speculative The bank's pure rate of interest is 3.5% and the inflation premium is 3%. What rate would the bank offer a customer who is in the upper medium grade risk class? A. 6.11% B. 8.73% C. 8.20% D. 6.64% E. 7.68% OF. 7.16% 5 poin Sanaponic, Inc. will pay a dividend of $6 for each of the next 3 years, $8 for each of the years 4-7, and $10 for the years 8-10. Thereafter starting in year 11, the company will pay a constant dividend of $5/year forever. If you require 12 percent rate of return on investments in this risk class, how much is this stock worth to you? OA. $37.77 B. $55.99 C. $34.54 OD. $50.50 E. $41.46 OF. $45.68 QUESTION 15 A stock has a beta of 1.5. The pure rate of interest is 2.75 percent and investors require a 3 percent inflation premium. What is the required rate of return on this stock if the market risk premium is 6 percent? (Hint: First, calculate the risk-free rate using the pure rate and the inflation premium. Next, use this risk-free rate to find the required return on the stock.) A. 14.8% B. 16.5% OC. 15.7% OD. 13.7% O E. 17.4% O F. 12.9% Spoints Save Answer submit. Click Save All Answers to save all answers. Save All Answers Save and Submit 7:41 PM 443 asian025
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