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1) Describe (in detail) the three forms of underwriting.

2) You want to set up an education trust for a relative starting in 2014. The trust will pay $25,000 a year starting in year 2022 and ending in year 2025. The stated annual percentage rate is 8% compounded annually.

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a. How much will you have to invest in 2010 to achieve your objective?

b. How much will you have to invest each year from 2012 – 2017 to achieve your objective?

3) Samuelson Plastics has 7.5 percent preferred stock outstanding. Currently, this stock has a market value per share of $52 and a book value per share of $38.

What is the cost of preferred stock?

4) Tidewater Fishing has a current beta of 1.21. The market risk premium is 8.9 percent and the risk-free rate of return is 3.2 percent. By how much will the cost of equity increase if the company expands its operations such that the company beta rises to 1.50?

5) Penn Corporation does not currently pay dividends. It is expected to begin paying dividends in year three (3) with a $2.50 dividend. This dividend is expected to grow at a rate of 14% for three years and then 6% every year after that forever. The required return on Penn’s stock is 16%.

Calculate the price of Penn’s stock today.

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