1. A corporate bond promises to pay $100 in one year. The bond has a default probability of .3 and its market beta is 0.3. The equity premium is 4%; the equivalent Treasury rate is 3%. Assume that the bonds pays out nothing in the default state. Find the appropriate bond price today.
2. Covered Call Strategy:
Carlos purchased 100 shares of stock in Company Alpha for $20 a share. He recently sold a call on the stock for $1.75 with a strike price of $36. The stock has since increased in price to $43 per share. How much will Carlos make on this stock if the option is excercised?
The total profit Carlos wil make is____.