FIN 534 - Homework Chapter 9 Answers

Directions: Answer the following five questions on a separate document.

1. When working with the CAPM, which of the following factors can be determined with the most

precision?

a. The beta coefficient, bi, of a relatively safe stock.

b. The most appropriate risk-free rate, rRF.

c. The expected rate of return on the market, rM.

d. The beta coefficient of "the market," which is the same as the beta of an average stock.

e. The market risk premium (RPM).

1. Bloom and Co. has no debt or preferred stock?it uses only equity capital, and has two equallysized

divisions. Division X's cost of capital is 10.0%, Division Y's cost is 14.0%, and the corporate

(composite) WACC is 12.0%. All of Division X's projects are equally risky, as are all of Division

Y's...