FDIC insurance protects

An investor typically demands a return due to _______ and also due to _______.

There is a bond that is selling for $800. It will mature in 20 years and was originally issued with a coupon rate of 4%. If you purchase this bond, you will earn a capital ______ and ultimately earn the ______ rate.

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.