1. A company's perpetual preferred stock currently sells for $92.50 per share, and it pays an $8.00 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 5.00% of the issue price, what is the firm's cost of preferred stock?
2. Use both a diagram and English to explain the rationale for holding a broad index of the market instead of a portfolio of a number of stocks. Is this result consistent with the concept of market equilibrium or not?