1. A firm issued $15 million in preferred stock at a price of $3.25 per share. The preferred shares carry a 13% dividend or $0.42 annually. After paying fees and costs, the firm realizes $2.89 per share issued. What is the cost of capital for this issuance of preferred stock?

2. Suppose S=$100, K=$95, r=8% (continuously compounded, t=1, alpha=30%, and beta=5%. Explicitly construct an eight-period binomial tree using the lognormal expressions for u and d. Compute the prices of European and American calls and puts.

3. A firm offers a 15-year maturity bond with $1,000 face value and 6% coupon rate. The current market price for the bond is $998. Selling the bonds costs the firm $60 per share. What is the after-tax cost of his debt, assuming a 34% corporate tax?