For the cost of equity (stock) is it better to use the current US Treasury bill rate or a longer-term government bond rate as the risk-free rate of return?
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government bond rate as the risk-free
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- Suppose interest rates in the economy increase. How would such a change affect the costs of both debt and common equity based on the CAPM?What are the differences between stocks and bonds in terms of predicted future payments? Which sort of investment is regarded to be riskier (stocks or bonds)? Given your knowledge, which investment (stocks or bonds) do you believe is often referred to as "fixed income"?How do stocks and bonds differ in terms of the future payments that they are expected to make? Which type of investment (stocks or bonds) is considered to be more risky? Given what you know, which investment (stocks or bonds) do you think commonly goes by the nickname “fixed income”?
- Assume that the risk-free rate increases, but the market risk premium remains constant. What impact would this have on the cost of debt? What impact would it have on the cost of equity? How should the capital structure weights are used to calculate the WACC be determined?Assume that the risk-free rate increases, but the market risk premium remains constant. What impact would this have on the cost of debt? What impact would it have on the cost of equity?Which asset below is generally the most suitable benchmark measure of the risk-free return? Treasury bills Small stocks Long-term government bonds Non-investment grade bonds Common stocks
- What is a maturity risk premium? Group of answer choices -A premium that reflects interest rate risk. -The risk of capital losses to which investors are exposed because of changing interest rates. -The difference between the interest rate on a U.S. Treasury bond and a corporate bond of equal maturity. -The rate of interest that would exist on default-free U.S. Treasury securities if no inflation were expected.What does the capital asset pricing model (CAPM) calculate? a. The expected rate of return on an individual stock with respect to the risk-free rate of return b. The expected rate of return of an individual stock based on its overall risk c. The expected rate of return of an individual stock with respect to its market risk only d. The expected rate of return of an individual stock reflecting its financial risk Clear my choiceWhat is meant by the real risk-free rate of interest? Seleccione una: a. The nominal risk-free interest rate, less the expected inflation. b. The rate actually used in the market, not in textbooks. c. The rate quoted on short-term Treasury bills. d. The opportunity cost of foregoing consumption, representing the rate that must be offered to individuals to persuade them to save rather than consume.
- During times of rising inflation, are investments with fixed returns like a bond or bank CD attractive investments to own?How does the Liquidity Premium Theory influence the market interest rate?What risk is due to changes in the level of interest rate in the economy and may affect industries at the same time? a.systematic risk b. inflation rate risk c.foreign exchange rate risk d.interest rate risk
