[amp_mcq option1=”1.56%” option2=”5.00%” option3=”23.00%” option4=”64.28%” correct=”option2″]
The correct answer is B. 5.00%.
The cost of common stock is the expected return that investors require on a common stock investment. The bond risk premium is the additional return that investors require on a bond investment over and above the risk-free rate of return. The bond yield is the annual rate of return on a bond investment.
To calculate the bond yield, we can use the following formula:
Bond yield = Cost of common stock + Bond risk premium
In this case, the cost of common stock is 14% and the bond risk premium is 9%. Therefore, the bond yield is 5.00%.
Option A is incorrect because it is the cost of common stock, not the bond yield. Option C is incorrect because it is the cost of common stock plus the bond risk premium, not the bond yield. Option D is incorrect because it is much higher than the bond yield.