1. Torch Industries can issue perpetual preferred stock at a price of $50.50 a share. The stock would pay a constant annual dividend of $5.50 a share. What is the company's cost of preferred stock, rp? Round your answer to two decimal places. %

2. A person is thinking on taking a 200 million loan at the LIBOR rate. At the time, the LIBOR is at 2.36% and is expected to reach 3.5% or 1.3% with equal probability. Should this person enter the futures contract?

3. Lima Corporation makes purchases on credit with terms of 2/15, net 45. What is the effective annual rate (rEAR) of non-free trade credit if Lima does not take discounts and pays on Day 45? In your computations, assume there are 360 days in a year.