1. Suppose that we have three European puts with strikes 45, 50, and 55 and the same maturity 1 year. Their prices are 6.00, 8.90, 11.10. Is such situation possible. Is it possible to do an arbitrage?
2. Suppose that a firm had the following financing on the latest balance sheet, where the amounts are the market values. AMOUNT OF FINANCING PROPORTION OF TOTAL FINANCING Debt $15 million 30% Preferred stock 5 million 10 Common stock equity 30 million 60 50 million 100% Also, suppose that the firm’s after-tax costs for the component sources of financing are: COST Debt 5.6% Preferred stock 9.2% Common stock 13.0 %
Calculate the firm’s WACC.