1. Bill Burne's earnings are subject to deductions for Social Security, Medicare, and FIT. To date his cumulative earnings are $110,000. This week Bill earns $1,200. Bill, who is single, is paid weekly and claims three exemptions. Assume the Social Security rate is 6.2% on $110,100 and 1.45% for Medicare. His net pay for the week is:
A) $528.43
B) $1,017.86
C) $1,607.93
2. The risk-free rate is 2%. The Beta of stock 1 is 0.8 while its standard deviation is 15%. The beta of stock 2 is 1.6 while its standard deviation is 45%. Which of the following statements is true in equilibrium?
(a) The risk premium of stock 2 would be three times the risk premium of stock 1.
(b) The risk premium of stock 2 would be twice as much as the risk premium of stock 1.
(c) The expected return of stock 2 would be three times the risk premium of stock 1.
(d) The expected return of stock 2 would be twice as much as the risk premium of stock 1.