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##### finance

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**Question**

1. Which of the following describes the interest rate on debt that is virtually free of default risk? (Points : 2) real rate nominal rate risk-free rate prime rate inflation rate Question 2.2. Suppose the real risk free rate of interest is 4%, maturity risk premium is 2%, inflation premium is 6%, the default risk on similar debt is 3%, and the liquidity premium is 2%. What is the nominal interest rate on this venture’s debt capital? (Points : 2) 13% 14% 15% 16% 17% Question 3.3. Document Preview: 1. Which of the following describes the interest rate on debt that is virtually free of default risk? (Points : 2) real rate nominal rate risk-free rate prime rate inflation rate Question 2.2. Suppose the real risk free rate of interest is 4%, maturity risk premium is 2%, inflation premium is 6%, the default risk on similar debt is 3%, and the liquidity premium is 2%. What is the nominal interest rate on this venture’s debt capital? (Points : 2) 13% 14% 15% 16% 17% Question 3.3. Which of the following is not a component in determining the cost of debt? (Points : 2) inflation premium default risk premium liquidity premium maturity risk premium interest rate premium Question 4.4. A venture has raised $4,000 of debt and $6,000 of equity to finance its firm. Its cost of borrowing is 6%, its tax rate is 40%, and its cost of equity capital is 8%. What is the venture’s weighted average cost of capital? (Points : 3) 8.0% 7.2% 7.0% 6.2% 6.0% Question 5.5. Corporate bonds might involve which of the following types of “premiums.” (Points : 2) inflation premium default risk premium liquidity premium maturity premium all of the above none of the above Question 6.6. The difference between average annual returns on common stocks and returns on long-term government bonds is called a: (Points : 2) default risk premium maturity premium risk-free premium liquidity premium market risk premium Question 7.7. The word “risk” developed from the early Italian word “risicare” and means: (Points : 2) don’t care take a chance to dare to gamble Question 8.8. The “risk-free” interest rate is the sum of: (Points : 2) a real rate of interest and an inflation premium a real rate of interest and a default risk premium an inflation premium and a default risk premium a default risk premium and a liquidity premium a liquidity premium and a maturity premium Question 9.9. Calculate the after-tax WACC based on... Attachments: QUIZ.docx

Solution ID:565810 | This paper was updated on 26-Nov-2015

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