1. Jack's Construction Co. has 100,000 bonds outstanding that are selling at par value of $1,000. The bonds yield 8.9 percent. The company also has 3.4 million shares of common stock outstanding. The stock has a beta of 1.5 and sells for $40 a share. The U.S. Treasury bill is yielding 5 percent and the market risk premium is 8 percent. Jack's tax rate is 35 percent. What is Jack's weighted average cost of capital?
A. 6.13%
B. 12.25%
C. 9.80%
D. 7.35%
E. 14.55%
2. For the next three futures expirations, you observe the following Eurodollar quotations:
MAR 95.00
JUN 94.70
SEP 94.35
What shape does the yield curve have? Explain.