Question 1. Calculate the required rate of return for Mercury Inc., assuming that investors expect 5% rate of inflation in the future. The real risk-free rate is equal to 3% and the market risk premium is 5%. Mercury has a beta of 2.0, and its realized rate of return has averaged 15% over the last 5 years.
Question 2. A stock has an expected return of 12.25%. The beta of the stock is 1.15 and the risk-free rate is 5%. What is the market risk premium?
Question 3. An annual coupon bond with a $1,000 face value matures in 10 years. The bond currently sells for $903.7351 and has a 9% yield to maturity. What is the bond's annual coupon rate?