These questions are all from our slides.

1. What is the joint hypothesis problem when testing market efficiency? 2. When we observe an arbitrage opportunity, can we always make money? Please give an example to illustrate your point of view. 3. What are the advantages and disadvantages of issuing debt? One example for advantage and one for disadvantage. 4. What are the advantages and disadvantages of issuing equity? One example for advantage and one for disadvantage. 5. Harald Inc has 100 shares outstanding. There are four seats on its board of directors. Patrick owns 75 shares and Natasha owns 25 shares. Patrick does not want Natasha to be on board of directors: In case of cumulative voting, can Patrick successfully crowd out Natasha? 6. Firm A wants $1,000 financing either in the form of debt @ 10% or preferred stock at 6.7% percent dividend. Federal government imposes 40% tax on issuer of preferred stock. This is refunded to taxable issuer. However, firm A is not paying any taxes. Firm B is taxable @ 45% as an investor of Firm A. What is the after tax cost for Firm A if issuing preferred stock? What is the after tax cost for Firm A if issuing debt? What is the after tax yield for Firm B if investing in Firm A’s preferred stock? What is the after tax yield for Firm B if investing in Firm A’s debt? 7. Trans Can Corporation a. Currently No Debt b. Number of Shares Outstanding is 400, Price per Share is $20 c. Interest Rate is 10% d. Issue $4,000 in Debt to Buy Back Shares e. Earnings 1,200 expected, $400 during recession and $2,000 during expansion What is the EPS in recession without debt? What is the EPS in recession with debt? Under what condition that TCC with debt is better off than it is without debt? 8. Continue the TCC question, if strategy A says Strategy A: Buy 100 Shares in Levered Trans Can Corporation Can you come up a homemade leverage strategy that