Security A has an expected rate of return of 29.8 percent and a ...

[faduma]

Security A has an expected rate of return of 29.8 percent and a beta of 3.1. Security B has a beta of 1.70. If the
  Treasury bill rate is 5 percent, what is the expected rate of return for Security B?
 
  What will be an ideal response?

Question 2

Firms attempt to price bonds so that at issue they sell for the:
 
  A) face value.
  B) coupon value.
  C) firm value.
  D) same price as shares of preferred stock.

[lauravaras]

Answer to Question 1

Use A to determine the market risk premium.
.298 = .05 + 3.1(market return - .05)
.248 = (3.1  market return) - .155
.403/3.1 = .13 = market return
Return on B = .05 + 1.7(.13 - .

Answer to Question 2

A

[faduma]

Excellent

[daiying98]

Gracias!