# Part 4 (ch12) Questions Numeric

**Type your answers with “.” instead of “,”! For numerical answers, use 2 decimal places. For instance, if your answer is 0.12345 or 12.345%, type, “12.34” in the box.**

### Q1: Cost of Equity Capital

**Q:** Suppose a security’s beta is 1.161. If the risk-free rate is 5.012 percent and the market risk premium is 8.004 percent, calculate the security’s cost of equity capital?

**Q:** Suppose a security’s beta is 1.149. If the risk-free rate is 4.996 percent and the expected return of the market portfolio is 13.016 percent, calculate the security’s cost of equity capital?

**Answer**:

14.301

14.21

### Q2: Cost of Debt

**Q:** Suppose a company has outstanding bonds with a yield to maturity of 10.003 percent, a beta of 0.15, a rating with a probability of default of 49.997 percent and expected loss rate of 7.011 percent. If corresponding risk-free rates were 6.486 percent, and the market risk premium was 8.006 percent, estimate the expected return of the company’s debt using the CAPM and the default rate method.

CAPM:

Expected default method:

**Answer**:

CAPM: 7.687

Expected default method: 6.498