Answer:
B . Moody's
Explanation:
There are three major companies that provide credit rating services in the US. They are
- Standard and Poor (S&P)
- Moody’s Investor Services
- The Fitch Group
Each agency uses unique letter-based scores to indicate if a debt has a low or high default risk and the financial stability of its issuer.
Answer:
The discount rate assign to a new project with a Beta of 1.25 is 13.94%
Explanation:
The applicable formula is the Capital Asset Pricing Model formula of Miller and Modgliani quoted below:
Ke = Rf + (Market risk premium x Beta)
Currently Ke=14.945%
Beta =1.38
Risk free rate of return (Rf) is 4.25%
Market risk premium is the unknown
14.945%=4.25%+(Market Risk Premium)*1.38
14.945%-4.25%=Market Risk Premium*1.38
10.70%
=Market Risk Premium*1.38
10.70%/1.38=Market Risk Premium
Market Risk Premium =7.75%
However, the new project cost of equity has to be determined due to having a different Beta factor of 1.25(a different risk appetite)
Using the above formula, we have
Ke=4.25%+(7.75%
*1.25)
Ke =13.94%
