1. A stock has an annual return of 10 percent and a standard deviation of 61 percent. What is the smallest expected gain over the next year with a probability of 2.5 percent?
2. A convertible bond has a coupon of 6.5 percent, paid semiannually, and will mature in 12 years. If the bond were not convertible, it would be priced to yield 5.5 percent. The conversion ratio on the bond is 15 and the stock is currently selling for $42 per share. What is the minimum value of this bond?
3. You have decided to buy a house. You can get a mortgage rate of 5.45 percent, and you want your payments to be $1,200 or less. How much can you borrow on a 20-year fixed-rate mortgage?