Question
In: Finance
When a country's risk-free rate falls, the cost of equity to an MNC in that country...
When a country's risk-free rate falls, the cost of equity to an MNC in that country ___, and the cost of debt to an MNC in that country __, other things held constant.
increases; increases
decreases; decreases
is not affected; increases
is not affected; is not affected
Solutions
Expert Solution
The correct answer is Decreases, Decreases
When the risk free rate falls, the overall required return of the investor fall down, Therefore, the cost of equity would decline and the cost of debt would also decline as the interest rates will fall down.
jeff jeffy answered 2 years agoRelated Solutions
When a country's risk-free rate falls, the cost of equity to an MNC in that country...
When a country's risk-free rate falls, the cost of equity to an
MNC in that country _____, and the cost of debt to an MNC in that
country ____, other things held constant.
assume that Storches equity has a Beta of 1.1 the risk free rate is 2.7% and...
assume that Storches equity has a Beta of 1.1 the risk free rate
is 2.7% and the market risk premium is 5%. According to the Capital
Asset Pricing Model what should be the required rate of return?
a) Baxter International has an equity beta of 0.8, a risk-free rate of 3% and a...
a) Baxter International has an equity beta of 0.8, a risk-free
rate of 3% and a market portfoli return of 11%. The firm has a
debt-to-equity ratio of 0.5 with the cost of debt at 6%. The
marginal tax rate is 40%. What is the cost of capital of the firm,
if CAPM holds?
b) Suppose the firm is also considering a warehouse renovation
costing $60 million that is expected to generate cost savings of
$12 million per year for...
When do we use the Risk free rate instead of the Discount rate
When do we use the Risk free rate instead of the Discount
rate
• The risk-free rate in the US is 5% and the UK risk-free rate is 8%....
• The risk-free rate in the US is 5% and the UK risk-free rate
is 8%. The spot quote is $1.80/£ while the one year forward quote
is $1.78/£. You can borrow either $1,000,000 or £555,556. According
to IRP, is the forward quote correct? If not, what should it
be?
If the forward quote is not correct, lay out the steps to
implement an arbitrage.
The annualized US risk-free rate is 8% and the Germany
risk-free rate is 5%. Assume...
The risk-free rate in the US is 5% and the UK risk-free rate is 8%. The...
The risk-free rate in the US is 5% and the UK risk-free rate is
8%. The spot quote is $1.80/£ while the one year forward quote is
$1.78/£. You can borrow either $1,000,000 or £555,556. According to
IRP, is the forward quote correct? If not, what should it be?
If the forward quote is not correct,
lay out the steps to implement an arbitrage.
Cost of Common Equity: Cost of Retained Earnings, rs: Suppose that (1) the risk-free return is...
Cost of Common Equity:
Cost of Retained Earnings,
rs:
Suppose that (1) the risk-free return is 5.5%; (2) the average
stock return (i.e. the market return) is 11.5%; (3) your firm
stock’s beta (i.e. stock’s risk) is 0.8; (4) the next dividend
payment will be $1; (4) the growth rate of the dividend is 6%; (5)
the current market price of the stock is $25; (6) the yield of your
firm’s long-term bond is 6.5%; and (7) the risk premium...
The annualized risk-free rate in the eurozone is 3% and the annualized UK risk-free rate is...
The annualized risk-free rate in the eurozone is 3% and the
annualized UK risk-free rate is 5%. The spot quote is €1.20/£ while
the one year forward quote is €1.25/£. You can borrow either
€1,000,000 or £833,333.33. According to interest rate parity, is
the forward quote correct? If not, what should it be? If the
forward quote is not correct, how much money would you profit if
you implemented the proper arbitrage?
Multiple Choice:
Forward rate should be €1.2643/£; arbitrage...
the annualized risk-free rate in the eurozone is 5% and the annualized UK risk-free rate is...
the annualized risk-free rate in the eurozone is 5% and the
annualized UK risk-free rate is 3%. The spot quote is €1.18/£ while
the one year forward quote is €1.25/£. You can borrow either
€1,000,000 or £847,457.6.
According to interest rate parity, is the forward quote correct?
If not, what should it be?
If the forward quote is not correct, how much money would you
profit if you implemented the proper arbitrage?
Multiple Choice
Forward rate should be €1.2643/£; arbitrage...
Q CO. has a capital structure that consists of 100% equity. The risk free rate is...
Q CO. has a capital structure that consists of 100% equity. The
risk free rate is 7% and the market risk premium, (Rm – Rr), is 5%.
Currently the company’s cost of equity (rs), which is based on
CAPM, is 12% and its tax rate is 30%. What would be Q’s estimated
cost of equity if it were to change its capital structure to 30%
debt and 70% equity? Compute the business risk premium and
financial risk premium under the...
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