1. Mike Whizowski Motors issued one million shares of preferred stock that pays a dividend of $2.00 per year. If the required rate of return on their stock is 8%, how much money were they able to raise?

2. Suppose that currently the annual effective rates for are: 8% for one year, 10% for two years and 11% for 3 years.

a) For a 3-year interest-only, floating-rate loan, find the swap rate for a fixed interest rate loan that would be equivalent to the interest rates given above.

b) Suppose Company A borrows $40,000 for 3 years. Assume the loan is interest only and variable rate. Company A wants a fixed rate and enters into an interest rate swap with Company B. What is the net amount that Company B will pay in the second year assuming interest rates do not change?

c) For the swap in part b), what is the value to Company B at the end of year 2, if at year 2 the spot rate for 1 year is 9%.