A Firm Has 4,000,000 Shares of Common Stock Outstanding, Each

Multiple Choice

A firm has 4,000,000 shares of common stock outstanding, each with a market price of $12.00 per share. It has 25,000 bonds outstanding, each selling for $980 (with a face value of $1,000) . The bonds mature in 20 years, have a coupon rate of 9 percent, and pay coupons semiannually. The firm's equity has a beta of 1.5, and the expected market return is 21 percent. The tax rate is 21 percent and the WACC is 15 percent. What is the risk-free rate?

A) 7.12 percent
B) 6.28 percent
C) 9.22 percent
D) 19.36 percent