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1. Five years ago Brookfield Industries issued 30 year bonds with a? 4% coupon rate callable at par after 5 years. Inflation has increased and the yield on bonds similar to? Brookfield's is now? 6%. Given these? facts,
A. Brookfield is almost certain to call the bonds.
B. the price of the bonds will remain close to par because of their call value.
C. the yield to call on the Brookfield bonds is now? 6%.
D. Brookfield is not likely to call the bonds any time soon.
2. A call option on IBM with an exercise price of? $90 will expire in 30 days. IBM stock is currentlt selling for? $93 per share. The volatility of IBM stock is? 62%. The risk free rate is? 5%. The? Black-Scoles formula will value this IBM call? at____?
A. ?$3.00
B. ?$8.29
C. ?$0.0
D. ?$4.81
Calculate the expected return for the two stocks. Calculate the standard deviation for the two stocks.
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