MULTIPLE CHOICE Choose the one alternative that Iwst completes the statement or

Question

MULTIPLE CHOICE Choose the one alternative that Iwst completes the statement or answers the question DAsian Trading Company is expected to pay dividend of $s per share next year The dividend is expected to grow at a constant rate of 8% per year. The price or Asian Trading Company's stock today is $29 per share. If Asian Trading Company decides to issue new common stock, flotation costs will equal 11%. Asian Trading Company's marginal tax rate is 35%. Based on the above information, the cost of new common stock is A) 20.86%. B) 25.24%. C) 27.37%. D) 26.62%. 2) What is the expected return on a stock with a beta of 0.09, a market risk premium of 1.35%, and a expected market return of 8.15%? A) 4.36% B) 8.36% C) 6.92% D) 8.27% 3) You plan to buy a Honda car which currently costs $22,000. The car dealer offers the following two options: you can either borrow the entire amount at low interest rate of 1.99% per year compounded monthly for 36 months or get a cash rebate of $1000 and borrow at 3.99% per year compounded monthly for 36 months, which option is better for you? A) Lower interest rate since monthly payment is $623 B) Lower interest rate since monthly payment is $630 C) Cash rebate rate since monthly payment is $620 D) Cash rebate rate since monthly payment is $635 4) You decide to buy a house for $300,000. You plan to put a down payment of $50,000 and borrow the remaining amount from a bank. The bank charges a interest rate of 8% compounded monthly. If you pay back the loan over 30 y what will your monthly payments be (rounded to the nearest dollar)? A) S1,123 B) S1,834 C) $1,687 D) $1,237

Explanation / Answer

2. Market risk premium = expected market return - risk free rate

1.35 = 8.15 - risk free rate

risk free rate = 8.15 - 1.35

risk free rate = 6.8%

Expected return on stock = risk free rate + beta * market risk premium

Expected return on stock = 6.8 + 0.09 * 1.35

Expected return on stock = 6.8 + 0.1215

Expected return on stock = 6.92%

Please post other questions separately. Thanks.

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.