1. According to the dividend discount model of stock valuation, holding other factors constant an increase in investors required rate of return for a stock increases the stock's price.
2. When valuing European Vanilla Options in the Black-Scholes-Merton Model, there is one source of uncertainty. What is this uncertainty?
3. A company has $50 million of outstanding equity with a required return of 18%. They also have $15 million face amount of 8% coupon bonds outstanding with a yield to maturity of 9.5% and 6 years until maturity. Assuming a tax rate of 40%, what is Risk’s weighted average cost of capital.
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