Financial Management - Study Mode

[#671] Cost of common stock is 13% and bond risk premium is 5% then bond yield would be
Correct Answer

(C) 8.00%

Explanation

Solution: Bond Yeild = Cost of common stock - Bond risk premium = 13% - 5% = 8%.

[#672] Variability for expected returns for projects is classified as
Correct Answer

(B) stand-alone risk

Explanation

Solution: Variability for expected returns for projects is classified as stand-alone risk. Standalone risk measures the dangers associated with a single facet of a company's operations or by holding a specific asset, such as a closely-held corporations. In portfolio management, standalone risk measures the undiversified risk of an individual asset.

[#673] Cost of common stock is 16% and bond yield is 9% then bond risk premium would be
Correct Answer

(A) 7.00%

Explanation

Solution: Bond risk premium = Cost of common stock - Bond Yeild = 16% - 9% = 7%.

[#674] If future return on common stock is 14% and rate on T-bonds is 5% then current market risk premium will be
Correct Answer

(B) 9.00%

Explanation

Solution: Current Market Risk Premium = Future return on common stock - T-Bond = 14% - 5% = 9%.

[#675] Cost of capital is equal to required return rate on equity in case if investors are only
Correct Answer

(B) common stockholders

Explanation

Solution: Cost of capital is equal to required return rate on equity in case if investors are only common stockholders. Cost of capital refers to the opportunity cost of making a specific investment. It is the rate of return that could have been earned by putting the same money into a different investment with equal risk.