1. Alliance & Co has outstanding bonds with 15 years left to maturity. They have a coupon payment of 8.5% paid semiannually. The usual par value of $1,000 applies. Currently they selloff $1,025. Find the after-tax cost of debt if the tax rate is 37%.
2. Calculate the required rate of return for Mudd Enterprises assuming that investors expect a 3.9% rate of inflation in the future. The real risk-free rate is 2%, and the market risk premium is 7%. Mudd has a beta of 2.2, and its realized rate of return has averaged 11% over the past 5 years. Round your answer to two decimal places.