1. If employee-investors are unsophisticated and unlikely to be materially influenced by educational efforts, the best way to improve the welfare of employee-investors is pension design. Discuss.
2. What are the four key elements to arbitrage trading?
3. Time Warner shares have market capitalization of $55 billion. The company just paid a dividend of $0.30 per share and each share trades for $45. The growth rate in dividends is expected to be 7% per year. Also, Time Warner has $15 billion of debt that trades with a yield to maturity of 9%. If the firms tax rate is 40%, compute the WACC?
A. 7.22%
B. 8.3%
C. 7.94%
D. 6.86%