1. List three benefits of reinsurance (from primary insurers’ perspective). Describe two examples of how reinsurance provides benefits (either hypothetical or real-life examples).
2. The Green Ballroom just paid its first annual dividend of 5.87 a share. The firm plans to increase the dividend by 3.2 percent per year indefinitely. What is the firm’s cost of equity if the current stock price is $4.75 a share?
3. The hedge ratio of an at-the-money call option is 0.4. The hedge ratio of an ATM put option is -0.6. What is the hedge ratio of an ATM straddle position?