1. A bond pays semi-annual coupon payments of $30 each. It matures in 20 years and is selling for $1,200. What is the firm’s cost of debt if the bond’s par value is $1,000? (Don’t forget this is a semi-annual coupon.)

A. 2.23%

B. 4.48%

C. 1.80%

D. 3.60%

2. In the Capital Asset Pricing Model, the market risk premium is estimated over a long period of time because:

A. more data is always better than less.

B. a longer holding period gives a more reliable estimate because it is, in effect, a larger sample size.

C. almost all investors hold stocks for many years, so it matches their investment horizon.

D. historical returns are the best indicators of future returns.