What are the sources of capital for a firm?

A bondholder should require a return equal to the ______. Hint: Remember, what is true about the coupon rate?

A low standard deviation indicates a _______ amount of deviation between the average observation and the individual observation. A low-risk stock will have a _______ standard deviation.

The cost of capital (WACC) is best described as ______. 

Bondholders are best described as ______ of a firm and shareholders are best described as ______ of a firm.

Solve EITHER “A” or “B”. Make sure to indicate which problem you are solving……i.e. “A” or “B”! Option A: Guru Tech Inc. has stock that just paid a dividend of $10. This firm’s beta is estimated to be 1.2. Due to the firm’s maturity, its growth is estimated to be 8%. If the S&P 500 is currently returning 12% and Treasury bonds are returning 2%, what is this firm’s after-tax cost of equity? Assume a tax rate of 40%. (2) —————————————————————-OR—————————————————————————————— Option B: Houston Technology’s beta is estimated to be 1.4. The firm’s stock is expected to pay a dividend of $5 at the end of this year and is currently selling for $65. The S&P 500 is currently returning 14%. If the firm expects constant growth in the future of 8%, what is the firm’s after-tax cost of equity? Assume a tax rate of 40%. (2)

_______ risk is associated with the market and this _______ affected by diversifying your portfolio.

Agency problems occur between

By diversifying properly, an investor should

Earlier this year, you had to make a decision to buy a stock and it is now the end of the year. You know that the stock that was under consideration at the beginning of the year had an expected return of 12% at the time of purchase. You estimated the required return of the stock to be 10%. You have now calculated the realized return of the stock to be 14%. At the beginning of the year, you made a purchase decision by comparing ________ returns. Based on these returns, your initial decision was a ________ decision.