36. (3 Points) A stock has a Beta of 1.4, the risk free rate is 2%, and the expected market return is 9%. What is the expected return on the stock? a. 9.8% b. 11.8% c. 12.6% d. 14.6% 37. (3 points) What are the following call options' prices given the following time premiums if the price of the underlying stock is $55? Option strike price Premium Call at $50 $1.00 Call at $55 2.00 Call at $60 0.50 a. Price of $50 Call b. Price of $55 Call c. Price of $60 Call 38. (4 points) A convertible bond has the following features: Face Value: $1,000 Maturity: 20 years Annual coupon: $70 Conversion Price: $80 a. The bond may be converted into how many shares? b. What is the current value of the convertible as a bond if prevailing interest rates are 6%? c. What is the current value of the convertible as a stock if the current stock price is $82 per share? d. Based on (b) and (c) and assuming a market premium of $30, what should the current price of the bond be? 39. (6 points) W Inc. currently has EPS of $10.00 and a payout ratio of 25%. Analysts predict that the dividend should grow 8% per year for the foreseeable future. The 90 day T Bill rate is 2%. The S&P 500 is expected to return 12% over the next year. ABC has a Beta of 1.3. a. What is the current dividend per share for W? b. Using the CAPM, what is the required return for W? c. Using the above information and the Dividend Growth Model, what is the expected current price of W to the nearest dollar? 40. (3 points) A bond has a 5% coupon and 10 years to maturity, what is its current price if the current market rate is 6%. 41. (3 points) A bond portfolio has a total face value and market value of $1,000,000, an average fixed coupon rate of 6% and average maturity of 9 years. Market rates suddenly increase 2% affecting all bonds in the portfolio equally. Based on the averages of the portfolio, what is the expected loss of market value (to the nearest dollar) of the portfolio resulting from this rate increase? a. No loss b. - $124,938 c. - $134,202 d. - $1,000,000ocew/content/group/1:406fble 2593-423d-bf71-710356373a56/Problem?120sets/Lcon101P57.pdf of quantity. Then find marginal revenue as the derivative of total revenue with respect to quantity. Plot MR, and explain why it is downward sloping- (e) The monopolist's optimal quantity occurs where MC crosses MR. Mark this quantity on the graph, and make sure it matches your answer to 2(d)- (f) Also mark the monopolist's price Pm from 2(e). Is this price above or bekes ATC at that quantity? Explain why you knew that would be the case. (g) The competitive market outcome happens when the demand function crosses marginal cost (the supply function in a competitive market). Find p" and y" as if the market were competitive. Mark these on the graph. 4. This question concerns surplus and efficiency of the market under monopoly. (a) On the graph you just drew, shade/color (and label) the areas corresponding to producer and consumer surplus under the monopoly outcome. (b) Calculate consumer and producer surplus. Note that producer surplus is a trapezoid; you can calculate its area either by splitting it into a rectangle and a triangle, or by using the formula for the area of a trapezoid (Google it if you don't know). (e) Recall that producer surplus is profit plus fixed cost. Is that the case here? (d) On the graph you drew in question 2, shade/color (and label) the area that represents the deadweight loss from having the monopolist outcome (Pa. ym) rather than the com- petitive outcome (p' y') then calculate its value. 8
