1. Using CAPM explain what is your best choice: Deposit $100 with a risk free 2% investment or medium risk(systematic risk) at 8% or a higher risk investment at 15%. Show your work and explain. In your explanation explain how beta is calculated.
2. Kenny Electric Company’s noncallable bonds were issued several years ago and now have 6 years to maturity. These bonds have 9.25% annual coupon, paid semiannually, sell at a price of $1,075, and have a par value of $1,000. If a firm’s tax rate is 40%, what is the component after-tax cost of debt for use in the WACC calculation? SHOW CALCULATIONS.