1. The firm is financed by 40% of debt and 60% of equity. It has the weigthed average cost of capital of 17.4%. The cost of equity is 25% and the firm pays 10% interest rate on its debt to investors. What is the corporate tax rate?
2. Define target run-up? What are some possible reasons for run-up?
3. A call option with a strike price of $30 costs $1.5. A put option with a strike price of $25 costs $2.5. Explain how a strangle can be created from these two options. What is the pattern of profits from the strangle?
4. “Financial time series frequently exhibit time varying unconditional variance.”
Question: Consider whether the statements below are true or false and why (3-4 sentences):