1. Suppose you bought a bond with an annual coupon of 5 percent one year ago for $979. The bond sells for $937 today. If the inflation rate last year was 3 percent and the face value of the bond is $1000, what was your total real rate of return on this investment?
2. Suppose a stock had an initial price of $77 per share, paid a dividend of $2.29 per share during the year, and had an ending share price of $88. What was the capital gains yield?
3. If shareholders are more risk averse than managers are, it is a good idea to give managers call options with high strike prices? Discuss.