A ﬁrm has 100,000 shares of common stock and 40,000 shares of preferred stock outstanding. The common stock has a market value of $15 a share and the preferred stock is priced at $21 a share.
The ﬁrm also has 1,000 bonds outstanding with a market price of $989 and a 5% coupon rate. The
Bonds mature in ﬁfteen years and pay interest semi-annually. The weights for the common stock,
The preferred stock, and the debt are _____________, respectively.

Question

Quizplus · Accepted Answer

The weights are calculated as follows:Common stock: 100,000 shares * $15 per share = $1,500,000Preferred stock: 40,000 shares * $21 per share = $840,000Bonds: 1,000 bonds * $989 per bond = $989,000Total market value: $1,500,000 + $840,000 + $989,000 = $3,329,000Common stock weight: $1,500,000 / $3,329,000 = 45%Preferred stock weight: $840,000 / $3,329,000 = 25%Bond weight: $989,000 / $3,329,000 = 30%

A ﬁRm Has 100,000 Shares of Common Stock and 40,000