1. Of the following bonds, which one has the lowest degree of interest rate risk?

8 years to maturity with a coupon rate of 6%

8 years to maturity with a coupon rate of 4%

12 years to maturity with a coupon rate of 6%

12 years to maturity with a coupon rate of 4%

2. Larvey Co. has an unlevered cost of capital of 10.9 percent, a tax rate of 35 percent, and expected earnings before interest and taxes of $21,800. The company has $25,000 in bonds outstanding that sell at par and have a coupon rate of 6 percent. What is the cost of equity?

11.6 Percent

13.36 Percent

15.64 Percent

14.07 Percent

14.29 Percent