1. Insurance policies are generally standardized contracts as they are unilateral in nature. Discuss the advantages and disadvantages of using standardized contracts. Also, comment on how the principle of indemnity, including subrogation and insurable interest, upholds the intent of the policy contract?
2. Firm B has 20 million shares of common stocks outstanding that are currently being sold for $25 per share. The firm’s equity beta is 1.5. The risk-free rate is 5% and the expected market risk premium is 10%. What is the cost of equity capital for the firm? Assume the corporate tax rate is 40%.