18. Turn back at figure 2.10 (see attached) and look at the IBM Option. Suppose you buy a January 2013 expiration call option with exercise price $180.

a. Suppose the stock price in January is $193. Will you exercise your call? What is the profit on your position?

b. What if you had bought a January call with exercise price $185?

c. What if you had bought a January put with exercise price $185?

Problem Set 1, Chapter 2 #8, 9, 13, 16, 18, 20 8. Suppose investors can earn a return of 2% per 6 months on a treasury note with 6 months remaining until maturity. What price would you expect a 6 month maturity treasury bill to sell for? 9. Find after tax return to a corporation that buys a share of preferred stock at $40, sells it at year-end at $40, and receives a $4 year-end dividend. The firm is in the 30% tax bracket. 13. An investor is in a 30% tax bracket. If corporate bonds offer 9% yields, what must municipals offer the investor to prefer them to corporate bonds? 16. Which security should sell at a higher price? a. A 10 year treasury bond with a 9% coupon rate versus a 10 year treasury bond with a 10% coupon rate? b. A 3-month expiration call option with an exercise price of $40 versus a 3-month call on the same stock with an exercise price of $35. c. A put option on a stock selling at $50, or a put option on another stock selling at 60 (all other relevant features of the stocks and options may be assumed to be identical.) 18. Turn back at figure 2.10 (see below) and look at the IBM Option. Suppose you buy a January 2013 expiration call option with exercise price $180. a. Suppose the stock price in January is $193. Will you exercise your call? What is the profit on your position? b. What if you had bought a January call with exercise price $185? c. What if you had bought a January put with exercise price $185? 20. Both a call and a put currently are traded on stock XYZ; both have strike prices of $50 and expirations of 6 months. What will be the profit to an investor who buys the call for $4 in the following scenarios for stock prices in 6 months? What will be the profit in each scenario to an investor who buys the put for $6? a. $40 b. $45 c.$50 d.$55 e. $60