1. PC and Mac are identical firms operating in identical markets. PC is unlevered with assets valued at $10,000 and has 400 shares of stock outstanding. Mac also has $10,000 in assets and has $5,000 in debt financed at an interest rate of 10% and has 200 shares of stock outstanding. Both firms pay tax at the rate of 34%. Which comes closest to the level of earnings before interest and tax (EBIT) that would make earnings per share (EPS) the same for PC and Mac?

	a.	$ 800
	b.	$ 600
	c.	$1,600
	d.	$ 300
	e.	$1,000

2. State of Nature.........Probability........State Dependent Return A.........State Dependent Return B Recession....................70%..........................-.08................................................-.04 Expansion....................30%..........................0.28...............................................0.16

What comes closest to the covariance between Stock A and Stock B?

	a.	.0151
	b.	.0028
	c.	.0000
	d.	.1170
	e.	-.0028