1. The risk-free rate is 4%. The expected rate of return on the stock market is 12%. What is the appropriate cost of capital for a project that has a beta of -3? Does this make economic sense?
2. The risk-free rate is 4%. The expected rate of return on the stock market is 7%. A corporation intends to issue publicly traded bonds that promise a rate of return of 6% and offer an expected rate of return of 5%. What is the implicit beta of the bonds?