1. A stock has an expected return of 17 percent, its beta is 1.3, and the expected return on the market is 14 percent. What must the risk-free rate be? (Do not round your intermediate calculations.)

4.16%

-1.20%

4.20%

4.00%

3.80%

2. Fama's Llamas has a weighted average cost of capital of 11.5 percent. The company's cost of equity is 17.5 percent, and its pretax cost of debt is 8 percent. The tax rate is 31 percent. What is the company's target debt-equity ratio? (Do not round your intermediate calculations.)

1.0535

1.0435

0.9532

1.0033

1.7143