**Question #1 **

If the beta of Exxon Mobil is 0.65, risk-free rate is 4% and the market rate of return is 14%, calculate the expected rate of return for Exxon.

**Question #2 **Given the following data for the a stock: risk-free rate = 5%; beta (market) = 1.5; beta (size) = 0.3; beta (book-to-market) = 1.1; market risk premium = 7%; size risk premium = 3.7%; and book-to-market risk premium = 5.2%. Calculate the expected return on the stock using the Fama-French three-factor model.

**Question #3 **Johnson Paint stock has an expected return of 19% with a beta of 1.7, while Williamson Tire stock has an expected return of 14% with a beta of 1.2. Assume the CAMP is true.

(a). What is the expected return on the market?

(b). What is the risk-free rate?

(c). What is the market risk premium?

**Question #4 **

The market value of Charcoal Corporation’s common stock is $20 million, and the market value of its risk-free debt is $5 million. The beta of the company’s common stock is 1.25, and the market return (K_{m}) is 13%. If the Treasury bill rate (R_{f}) is 5%, what is the company’s cost of capital? (Assume no taxes.)**Question #5 **A project has an expected risky cash flow of $300, in year 3. The risk-free rate is 5%, the market risk premium is 8% and the project’s beta is 1.25. Calculate the certainty equivalent cash flow for year 3.

Question #6

The equity accounts of Bio-Tech Company is as follows:

Suppose the firm sells 2,000,000 new (additional) shares at a price of $19 per share. What is the new value of Common Shares account? What is the new value of the additional paid-in-capital account?

**Question #7 **

Given the following data for U&P Company: Debt (D) = $100 million; Equity (E) = $300 Million; r_{D} = 6%; r_{E} = 12% and T_{C} = 30%. Calculate the after-tax weighted average cost of capital (WACC):

**Question #8 **

Learn and Earn Company is financed entirely by Common stock that is priced to offer a 20% expected return. If the company repurchases 50% of the stock and substitutes an equal value of debt yielding 8%, what is the expected return on the common stock after refinancing?

**Question #9 **

Consider two firms, With and Without, that have identical assets that generate identical cash flows. Without is an all-equity firm, with 1 million shares outstanding that trade for a price of $24 per share. With has 2 million shares outstanding and $12 million dollars in debt at an interest rate of 5%. According to MM Proposition 1, what is the stock price for With?

Question #10

Consider a one-year, $1000, zero-coupon bond issued. Assume that the bond payoffs are uncertain. There is a 50% chance that the bond will repay its face value in full and a 50% chance that the bond will default and you will receive $900. Thus, you would expect to receive $950. Because of the uncertainty, the discount rate is 5.9%. Calculate the promised yield on the bond.

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