1. Earnings and dividends per share at G3-Biz Inc. are expected to grow at a rate of 18 percent over the next two years, then at 15 percent in the third year, and then at 6 percent thereafter. G3- Biz just paid a dividend of $1.15. If the required rate of return on the stock is 12 percent, what is the price of a share of G3-Biz stock today? Round off to two decimal points. (i.e. "x.xx")
2. Suppose that the company XYZ is going to pay a dividend of $1.50 per share next year, and the dividend is expected to grow by 10% forever. If investors require a 13%, what should the value of XYZ's stock be? a) 55 b)50 c)62 d)65
3. Suppose that the stock of the company CFAA is currently trading on April 15 at a price of $70. A call option with a strike price of $70 and an expiration date on October 15 is trading at $4. What is your profit if the stock price at expiration date is $80? Remember that each option contract is for 100 shares.
4. Suppose that a trader enters into a long futures position for 1000 oil barrels with a delivery date on December 2016 and a future price of $40 per barrel. Suppose that on delivery date, the spot price of oil is $45 per barrel. What is the payoff to the long position?
5. Suppose your research shows that technology stocks currently provide an expected rate of return 12%. BMI, a large computer company, is expected to pay a dividend of $2 per share at the end of the year. If the stock is currently selling at $48 per share, what is the market's expectation of growth at BMI? a) 6.53% b)7.83% c)4.17% d)none
6. An investor purchases a stock for $28 and a put on the stock for $0.40 with a strike price of $24. She also sells a call on the same underlying stock for $0.40 with a strike price of $30 and with the same expiration date. What is the value of her portfolio, net of the proceeds from the options, if the stock price ends up at $35 on the expiration date?
7. A spread is a combination of two or more call options on the same stock with differing exercise prices or times to maturity. Some options are bought, and others are sold. Consider a bullish spread option strategy where you buy a call option with a $35 exercise price priced at $4 and sell a call option with a $50 exercise price priced at $2.50. If the price of the underlying stock increases to $60 at expiration and each option is exercised on the expiration date, what is your net profit? a)8.50 b)13.50 c)16.50 d)23.50
8. Suppose you are a U.S. investor who is harmed when the dollar depreciates. Specifically, suppose that your profits decrease by $200,000 for every $0.05 rise in the dollar/pound exchange rate. If the pound futures contract on the Chicago Mercantile Exchange calls for delivery of 62,500 pounds, how many contacts will you need to enter to hedge? Will you take the long or the short side of the contracts? a)64 contracts short b)64 contracts longc)32 contracts shortd)32 contracts long
9. Which of the following is correct about the over-the-counter markets?

• a.The counterparty risk is eliminated.
• b. There is no clearing house.
• c. Futures are traded in OTC markets.
• d. Both b and c are correct.