1. Compare and contrast the following terms: required rate of return, expected rate of return, actual, or realized, rate of return.
2. A bond that pays interest forever and has no maturity date is a perpetual bond, also called a perpetuity or a consol. Explain how a perpetual bond is similar to (1) a no-growth common stock and (2) a share of preferred stock.
3. Explain how to use the free cash flow valuation model to find the price per share of common equity.

Chapter 8

1. Explain why options sell at prices higher than their exercise values.
2. Explain the difference between option, call option and put option.
3. Describe the effect on a call option's price that results from an increase in each of the following factors: (1) stock price, (2) strike price, (3) time to expiration, (4) risk-free rate, and (5( standard deviation of stock return.

Chapter 9

1. Explain how the WACC can be both an average cost and a marginal cost.
2. Distinguish between beta (i.e., market) risk, within-firm (i.e., corporate) risk, and stand-alone risk for a potential project. Of the three measures, which is theoretically the most relevant? Explain why.
3. Suppose a firm estimates its overall cost of capital for the coming year to be 10%. Explain what might be reasonable costs of capital for average-risk, high-risk, and low-risk projects.