1) The stock of Verde Enviro-Systems has a beta of 1.2. If the current risk-free rate is 3% and the market risk premium is 5% then according to the Capital Asset Pricing Model, what should be the required rate of return (report as raw number, i.e. if your answer is 11.25%, plug in 11.25).
2) Assume that you manage a firm in an environment with no taxes, no costs of financial distress, no asymmetric information, etc. Moreover, assume that your firm currently has no debt in its capital structure. The weighted average cost of capital of your firm is likely to go down if you issue debt and buy back shares of stock
True
False
3) Duke Energy has recently issued a bond with the following characteristics: maturity: 20 years, coupon rate: 7% (paid semi-annually), face value: $1000. Your investment advisor has told you that the yield-to-maturity on this bond is 7.5%. What should be the price of this bond?
4) You have a short position in a call option on Google stock where the strike price is $540. If Google closes at $550 on the day that the option expires, what will be your gross payoff per share (disregarding the upfront premium)?