Fin622 Mid Dec 2010 Paper

total quiez=32
mcq =28
2 question =3 numbers
2 question = 5 number

Q suppose we have two stocks i.e. stock A and stock B.stock A has beta of 1.5 and stock B has a beta of 0.75.The expected rate of return on average stock is 13% and the risk free rate of return is 7%.By how much does the required rate on the riskier stock exceeds the required return on the less risky stock. (5)

Q Why weighted average cost of capital of a levered firm is lesser than that of an Un-levered firm? Explain briefly? (3)

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