1. A company has a capital structure of 40% debt, 10% preferred stock and 50% common stock. The after-tax cost of debt is 4%, the current price of the preferred stock is $40, and the current price of the common stock is $30. The preferred stock dividend is $4 and the common stock dividend just paid was $5 and is expected to grow at a constant rate of 5%. If the company issues new common stock at a flotation cost of 5% of the current price, what is the company’s WACC?
2. A call option on the SGD with a strike price of 0.77 USD/SGD and a maturity of 6 months has a premium bid price of 0.06 USD, and a 1penny bid-ask spread. If you sell these options today on 10,000 SGD, and at maturity the SGD is quoted at bid price of 0.84 USD/SGD, with a 1 penny bid-ask spread, what is your net profit on this position? Note: pay careful attention to which side of the quote you will be trading with at each step.