1. Sandra Dean  is considering purchasing shares in DM Designs.  The share price is currently $64.  Alternatively, Sandra can buy an out of the money call option with a striking price of $65, that is currently priced at $2.25.  Janet expects the stock price to rise to $68.  What is the difference between the stock's return on investment and the option's return on investment?

 

2. Twelve months ago a $1,000 face value, 6% coupon bond was selling for $1,100. Since then, the market yield has decreased by two percentage points. The bond pays interest semiannually and now has four years to maturity. What is the bond's price today?