1. King Fisher Aviation issued a 25 year, 6.8 percent semiannual bond 8 years ago. The bond sells today for 110 percent of its face value. The tax rate is 40%.

What is the pretax cost of debt?

What is the after-tax cost of debt?

Which is more relevant, the pretax or the after-tax cost of debt? Why?

2. Based on the following information, calculate the expected return and standard deviation for two stocks:

State of the Economy	Probability	Rate of Return Stock A	Rate of Return Stock B
Recession	.25	.05	-.19
Normal	.50	.06	.14
Boom	.25	.10	.34

3.Based on the following information, calculate the expected return and standard deviation:

State of the Economy	Probability	Rate of Return
Depression	.15	-.107
Recession	.20	.069
Normal	.40	.135
Boom	.25	.215