1. Smith Inc stock has an expected return of 15%, a beta of 1.5 and is in equilibrium. Assume the nominal risk-free rate is 4.00% (A) What is the market risk premium? (B) What is the equity risk premium?
2. Consider an exchange-traded call option contract to buy 500 shares with a strike price of $40 and maturity in four months. Explain how the terms of the option contract change when there is
A-A 10% stock dividend
B-A 10% cash dividend
C-A 4-for-1 stock split