1. Contrail Air, Inc. is trying to determine its cost of debt. The company has an outstanding debt issue with 18 years to maturity that is quoted at 97.00% percent of face value. The issue makes semiannual payments and has a coupon rate of 10.00% percent. What is the pretax cost of debt?
Settlement: 01/01/2000
Maturity: 01/01/2018
Price (% of par ): 97
Coupon rate: 10%
Payments per year: 2
Tax rate: 34%
2. What is the dominant risk factor for investors who hold diversified portfolios of assets?
a) Beta
b) Coefficient of variation
c) Standard deviation
d) Correlation coefficient