1. The correlation coefficient between Amazon stock and the market portfolio is 0.7. The standard deviation of Amazon stock is 45% and that of the market is 25%. Calculate the beta of the Amazon stock.
a. 1.260
b. 2.800
c. 0.315
d. 1.800
2. Jacobee Corporation has net income of $35 million per year on net sales of $110 million per year. It currently has no long-term debt, but is considering a debt issue of $40 million. The interest rate on the debt would be 10%. Jacobee Corp. currently faces an effective tax rate of 35%. What would be the annual interest tax shield to Jacobee Corp. if it goes through with the debt issuance?
a. $560,000
b. $1,400,000
c. $8,000,000
d. $20,000,000