1. The return on a Futures contract
A) is Highly related to the low margin requirement
B) is always equal to or greater than zero
C) Tends to be fairly stable from one trading day to the next
D) is solely related to the current price of the underlying item
2. The TrunkLine Company will earn $60 in one year if it does well. The debtholders are promised payments of $35 in one year if the firm does well. If the firm does poorly, expected earnings in one year will be $30 and the repayment will be $20 because of the dead weight cost of bankruptcy. The probability of the firm performing poorly or well is 50%. If bondholders are fully aware of these costs what will they pay for the debt? The interest rate on the bonds is 10%.
a. $25.00
b. $27.50
c. $29.55
d. $32.50
e. $35.00