## Question: Consider the following information about Stocks I…

 Consider the following information about stocks I and II

Rate of return for stock 1 and 2

 State of economy Probability of state of economy Stock 1 Stock 2 Recession .30 .10 -.25 Normal .40 .17 .12 Irrational exuberance .30 .11 .45

The market risk premium is 8 percent, and the risk-free rate is 3 percent. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16. Enter your return answers as a percent.)

The standard deviation on stock I’S RETURN IS? Percent, and the stock I beta is? The standard deviation on stock ll’s return? Percent, and the stock ll beta is? Therefore, based on the stock’s systematic risk/beta, stock one of two is “riskier”.

## Question: Consider the following information for even flow Po…

Consider the following information for even flow Power Co.,

Debt: 3,500 8 percent coupon bonds outstanding, \$1,000 par value, 22 years to maturity, selling for 102 percent of par; the bonds make semiannual payments.

Common stock: 84,000 shares outstanding, selling for \$60 per share; the beta is 1.1.

Preferred stock: 10,000 shares of 6.5 percent preferred stock outstanding (note: multiply this percentage in decimal format times 100 to get the dividend), currently selling for \$105 per share.

Market: 9.5 percent market risk premium and 6 percent risk-free rate.

Assume the company’s tax rate is 34 percent.

Required: Find the WACC. (Do not round your intermediate calculations.)

12.14%

11.56%

11.24%

11.06%

11.16%