1. A firm's preferred stock pays an annual dividend of $10, and the stock sells for $86. Flotation costs for new issuances of preferred stock are 5% of the stock value. What is the after-tax cost of preferred stock if the firm's tax rate is 38%? (Round your answer to 2 decimal places.)

2. A bank with a leverage-adjusted duration gap of 2 years and total assets of $100 million uses a futures contract whose underlying's duration is 5 years and has a price of $100,000 to hedge its exposure. The number of contracts needed is:

A. 200

B. 400

C. 800

D. 1,000