(iii) Now suppose you want to issue both debts and equities to finance the business. Specifically, you would like to maintain the debt-to-equity ratio equal to one. If the beta of debt is 0.5, compute the costs of capital of the business for this scenario. (3 points)

16. Figure 1 plots changes in prices (in the vertical axis) in respond to changes in the yield to maturity (the horizontal axis) for four coupon bonds with the following properties:i. maturity in 5 years, coupon rate 3%, and yield to maturity 1 5%;ii. maturity in 15 years, coupon rate 3%, and yield to maturity 15%;iii. maturity in 15 years, coupon rate 3%, and yield to maturity 9%; iv. maturity in 5 years, coupon rate 18%, and yield to maturity 15%. Please identify which properties are with Bonds A, B, C, and D in the graph. Note that scores are given only if you offer reasons alongside with the correct answer. (10 points)

題組內容

(iii) Now suppose you want to issue both debts and equities to finance the business. Specifically, you would like to maintain the debt-to-equity ratio equal to one. If the beta of debt is 0.5, compute the costs of capital of the business for this scenario. (3 points)

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