22. An efficient capital market is best defined as a market in which security pr

Question

22. An efficient capital market is best defined as a market in which security prices reflect which one of the following?

A. The historical geometric rate of return

B. A risk premium

C. Available information

D. The historical arithmetic rate of return

23. Western Electric has 23,000 shares of common stock outstanding at a price per share of $57 and a rate of return of 14.2 percent. The firm has 6,000 shares of 7 percent preferred stock outstanding at a price of $48 a share. The preferred stock has a par value of $100. The company also has 350 corporate bonds, each with $1000 par value, and the bond currently sells for 102 percent of face. The yield-to-maturity on the debt is 8.49 percent.

What is the capital structure weight of the firm's preferred stock?

9.89%

14.72%

21.57%

28.26%

PLEASE ANSWER ALL QUESTIONS

A.

9.89%

B.

14.72%

C.

21.57%

D.

28.26%

Explanation / Answer

Answer to the Question (22)

Point D. is the correct answer.

An efficient capital market is best defined as a market in which security prices reflect the Risk premium.

Answer to the Question (22)

Weight of preferred stock 18%.

Capital Structure Quantity Market Price Market Value Weight Common stock               23,000                 57          1,311,000 80% Preferred stock                 6,000                 48             288,000 18% Debt                    350               102              35,700 2% TOTAL          1,634,700

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