1. Given the following information for Indiana Power Co., find the WACC. The company's tax rate is 35 percent; Debt: 4,000 7 percent coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 103 percent of par; the bonds make semiannual payments; Common stock: 90,000 shares outstanding, selling for $57 per share; The firm’s beta is 1.10; Assume an 8 percent market risk premium (Remember the risk premium = [E(RM) – Rf]; Rf = 6 percent risk-free rate.

D. 10.15%

B. 8.00%

A. 14.80%

C. 6.72%

2. Using the CAPM, a stock has a beta of 1.3, the expected return on the market is 9 percent, and the risk-free rate is 4 percent. What must the expected return on this stock be?

C. 14.00%

B. 10.50%

D. 25.70%

A. 11.70%