Step - 1

Calculating Cost of debt:

YTM= (C+ (F-P)/n)/(F+P/2)

Where,

YTM = yield to maturity

C= coupon amount
F= face value
P= Price
N= tenor

From the question we have the following,

F= 1000

P= 1048

N= 11 yrs

C= 6.87 %

Coupon payment = 1000*6.87% = 68.70

YTM = [68.70 + (1000-1048)/11] / (1000 + 1048)/2) = [68.70 - 4.3636] / 1024 = 6.28285%

After tax cost of debt = cost* (1-tax) = 6.28284% * (1-0.29) = 4.46082%

Step - 2

Computing the Cost of equity:

Cost of equity = (DPS/MPS)+g

Where,

DPS= Dividend per share. 

MPS= Market price per share, 
g= growth rate of dividend

From the question we have the following,

DPS = $1.47

MPS = $21.93

G = 2.58%

Cost of equity= (1.47 / 21.93) + 0.0258 = 9.283%

Step - 3

Cost of capital = debt weight* cost of debt + equity weight * cost of equity

Cost of capital = (1 - 0.74) * 4.46082% + 0.74 * 9.283%

Cost of capital = 8.02934%

Step - 4
 0 -1937821
1 394174.1 0.869565 28 1.5 29.5
2 394174.1 0.756144 3
3 394174.1 0.657516 25
4 394174.1 0.571753 2.5
5 394174.1 0.497177 8.58 1.8 6.78
6 394174.1 0.432328
7 394174.1 0.375937
8 394174.1 0.326902
9 394174.1 0.284262
10 500638.1 0.247185 0.741554 0.370777
IRR 15.883% 5.018769
29.08678 1 0.972455 60000
0.699107 2 0.945669 80000
3 0.919621 75000
4 0.89429 70000
5 0.869657 100000
 4.28 23% 3.2956
5.7956
29.08678

58347.31
75653.53
68971.57
62600.31
86965.71
352538.4
152538.4
 Year S&P 500 Small Stocks Corp BondsWorld Portfolio
Treasury Bills CPI
1929 -0.08907 -0.50467 0.04321 -0.07692 0.04737 0.00746
1930 -0.25257 -0.45583 0.06343 -0.22574 0.02347 -0.0642
1931 -0.43858 -0.50216 -0.0238 -0.39305 0.01023 -0.09235
1932 -0.08861 0.08696 0.12198 0.0303 0.00806 -0.10465
1933 0.52895 1.872 0.05255 0.66449 0.00293 0.00974
1934 -0.02341 0.25209 0.09728 0.02552 0.00155 0.01286
1935 0.47208 0.64739 0.0686 0.22782 0.00165 0.03175
1936 0.32801 0.87508 0.0622 0.19283 0.00175 0.01231
1937 -0.35258 -0.53403 0.02546 -0.1695 0.00319 0.0304
1938 0.33199 0.26275 0.04357 0.05614 0.00041 -0.0295
1939 -0.0091 0.00184 0.04247 -0.01441 8E-05 0
1940 -0.10082 -0.1234 0.04512 0.03528 -0.00058 0.00912
Total Return 0.30629 1.87802 0.64207 0.35276 0.10011 -0.17706
Question (a) Average Return
0.02552417 0.15650167 0.0535058 0.0293967 0.0083425 -0.014755
Question (b) VarianCe 0.09330626 0.46254625 0.0011806 0.0638775 0.00017972 0.00202853
Question (b) Standard Deviation
0.30546074 0.68010753 0.03436 0.2527399 0.01340605 0.04503919

0.46254625
0.68010753