5. Suppose a spot price of a market index is $1000. After 6 months the market index is priced at 1020. The annual risk-free rate is 5%. The premium on the short put, with exercise price of 1050 is $10.

a. What is the profit at expiration for a short put? [4]

b. What is the intrinsic value of the short put in (i) above? [2]

6. TALAMO FOODS Ltd wants to estimate its weighted average cost of capital (WACC). Its capital structure consists of 40% debt, 50% common stock and 10% preference shares. The cost of preference shares 10%. It has 5-year loan with FNB Namibia at prime +1, assume prime is currently at 8%. The market risk premium is 5% and 90-days Treasury-bill rate is 5%. Talamo Foods stock beta is 1.4 and falls into a tax bracket of 40%. Calculate TALAMO FOODS WACC. [5]