Margarita Begonia is interested in investing in a portfolio consisting of Rondoletia stock and T-bills. Margarita has an investment budget of $100,000. The prediction over the next year for stock Rondoletia is a return of $32% in economic expansion and 0% in recession. The T-bill rate is 4% in both scenarios. If both economic scenarios have the same probability of occurrence, then the expected return on Rondoletia stock is _____ and the expected return on the equally weighted portfolio (Rondoletia stock and T-bills) is _______.

Select one:

a. 16%; 10%

b. 32%; 36%

c. 16%; 20%

d. 0%; 4%

With no corporate taxes or other market imperfections, firm projects should have the same discount rate regardless of the financing method (debt or equity).

Select one:

True

False

A high value of d₁ in the Black-Scholes model (European call) is associated to ______

Select one:

a. a high interest rate.

b. a low stock price volatility.

c. a low stock price relative to the exercise price.

d. a low expiry date