1. Suppose a firm currently has no debt and its equity beta is 0.95. The firm plans to issue $20 million in debt such that its debt-to-total assets ratio will be 10%. If the firm pays an effective tax rate of 34%, what will its new equity beta be following the debt issuance?
2. Use an arbitrage argument to establish the put-call parity relationship when the asset underlying the option contract does not pay an income stream over the life of the option contract.
3. Suppose a firm has an equity beta of 1.25, $50 million of debt, and equity of $125 million. What is the firm's asset beta? Ignore the tax advantage of debt and assume the firm's debt beta is zero.