1. Describe two ways to hedge floating rate loan risk. Articulate what parties are involved, the relative expense, and explain briefly how it would work.
2. The standard deviation of Jonco is .34. Jonco has a beta of 2. The market is expected to return .14 with a standard deviation of .16. What is the firm-specific risk of Jonco? What is the R squared of Jonco?
3. Let the covariance between Timco and the market be .06. The standard deviation of the market is .22. The market is expected to earn 12% and the risk free rate is 2%. Find the required return on Timco stock.