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R = Rf + (Rm - Rf)*B = 4.5% + (12% - 4.5%)*1.10 = 4.5% + 7.5%*1.1 = 4.5% + 8.25% = 12.75% Cost of equity = 12.75%
Face value = $1,000 Coupon rate = 12% Frequency of coupon payment = Semiannual Coupon payment = $1,000*12%*1/2 = $60 Time to maturity now = 14 – 2 = 12 years Required rate of return = 14% Value of bond today = $60*PVIFA14%/2, 12*2 + $1,000*PVIF14%/2,
