In the context of CAPM, if a company A has an expected rate of return of 2.5% and the consensus is that the market will grow by 3% and the risk free rate is at 0.2%, what can you say about the beta of A? With this beta, what can you say the average price change of the stock, on a given day when the market index grows by 0.9%?

Q2/ A company B has very recently emitted a new a bond. The face value of the bond is 1000, its maturity is 5 years with yearly coupons; there is no emission nor redemption premiums. The coupon rate is 4.6%. Today, this bond yields 2.5%. What is the price of this bond?

Q3/ A company C that will pay in one year a dividend of 6 euros, in year two a dividend of 5.5 euros, in year three a dividend of 7 euros, in year four 6.3 euros, then, one year after, a dividend of 5 euros, and then a perpetual string of annual dividends growing at 2% per year. This firm's stock is priced at 95. What is its cost of equity? Use solver and interpolation methods.

Q4/ Company D total value is established to be $500 million. The total market value of its debt is $237 million, with a cost of equity of 8.7%. If the taxation rate is 33% and the WACC of D is 6.31%, what is its (raw/before tax) cost of debt?

Q5/ For a company producing integrated circuitry for graphic processing units and having a WACC of 6.1%, do you recommend investing in a new factory just outside Grenoble?

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Answers to your questions Q1 Beta of Company A Given information Expected return Ra 25 Market return Rm Riskfree rate Rf 3 02 28 Beta is unknown We ca... View the full answer