1.Use the a .35 risk free rate to find the price of a European call option on the stock with an exercise price $5 less than the current stock price of $25 with a maturity of 1 year (Use either the binomial or the risk-neutral method).

2.Sonic has 2,000,000 shares outstanding and plans to issue 100,000 warrants.Each warrant holder can purchase 5 new shares of stock.What is the value of the warrant?Assume the exercise price is $20 (the same as the prev call).

3.Sonic decides to issue a bond with the warrants instead.Using debt rate of 5% as the yield for bonds without warrants.Assume the bonds are 10-year bonds with annual coupons.There are 60 warrants attached to each bond.Set the coupon rate so the total package sells for $1000.

Information: Sales are $20 million for the most recent year. Cost of goods sold are $10 million. Inventory is $ 1 million Gross margin is 15%. EBIT is 2 million. Tax Rate is 35%. Working Capital is $1 million. Total Assets are $25 million. Retained Earnings are $6 million. Total Liabilities are $25 million.

Additional market information: Debt Rate- 3.55%, Beta- .8, Market Cap- 15 million, Stock Price - $23, T-bond - .35.

If there are any additional assumptions that must be made please indicate assumptions made