CFA Practice Question

There are 201 practice questions for this study session.

CFA Practice Question

  • FCFE = $1.65 per share.
  • Target debt ratio = 30%.
  • Expected return on the market =15%.
  • Risk-free rate is 5%.
  • Beta = 1.1
  • Growth rate of FCFE = 6%.

Calculate the equity value.
Correct Answer: r = 0.05 + (1.10 x 0.10) = 0.16 = 16%.
Equity value = ($1.65 x 1.06) / (0.16 - 0.06) = $17.49.

User Contributed Comments 4

User Comment
katybo risk premium?
duoluo r = RFR + beta*(Return on Market - RFR) = 16%
aravinda Here is how I remember

Market premium = E(Rm)
Market Risk premium = { E(Rm) - RFR }
Equity Risk Premium =same as above= {E(Rm) - RFR}
Risk Premium = Beta { E(Rm) - RFR }
UcheSam Expected return on the market is no the same as risk premium.
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