Explanation
We know from the put-call parity that:
Call - Put = Stock - Deposit
In the given situation,
Stock price = 100
call = 35
Put = ?
Exercise price = 100
However, we cannot use the stock price as-is, we need to adjust it for dividends that will be received during the period for which the option is valid. Dividends are $1, which need to be discounted to the present. In financial theory, dividends are often assumed to be continuously paid, though in reality they are single discrete payments at points in time. In this situation, for simplicity we assume that the dividend is paid at the end of the year, and needs to be discounted to the present and deducted from the spot price.
Therefore:
Stock price adjusted for dividends = $100 - ($1/1.05) = $100 - $0.95 = $99.05 Similarly, the bank deposit amount, which is the PV of the exercise price, can be calculated as $100/1.05 =
$95.24
We can now calculate the price of the put by plugging the numbers above in the put-call parity:
35 - Put = $99.05 - $95.24
Therefore the value of the put = 31.19, which is closest to 31.20 which therefore is the correct answer.

Explanation
Since the stock is selling for $100 spot, its 3 month forward price for you would be $100*(1 + 6%*3/12) =
$101.50. Since the forward is priced at $104, it is 'rich' compared to the spot and should be sold. A profitable trade would be to buy the spot and sell the forward.
Imagine you borrow $100 and buy the stock, and simultaneously sell the forward. At the end of 3 months, you will receive $104 in return from the forward, and be obliged to return the initial $100 borrowed together with interest of $1.50 for the three months. You would make a riskless profit of $2.50 per share in three months.
Thus Choice 'c' is the correct answer.
Note that the treasury yield is irrelevant, what matters is the rate at which you can finance the trade which is
6% per annum.

Explanation
This question requires us to use the CAPM.
Recall that according to CAPM the expected return on an asset = The risk free rate + x Market risk premium.
Using the beta and expected return of security A, we can determine the market risk premium to be (8% -
3%)/1.2 = 4.1667%. The excess return is the return over the risk free rate, and for security B, this is nothing but the beta multiplied by the market risk premium. Therefore the correct answer is 4.1667% x 1.5 = 6.25%.
Note that this is the 'excess return', and not the total return. (Total return will include the risk free rate).

Explanation
Choice 'a' is the correct answer as the issue of the floating rate note will provide the utility with the funds it needs, and the interest rate swap would offset the floating rate payment and leave it with a net fixed payment.
Choice 'd' is incorrect as the swap is in the wrong direction.
Choice 'c' is incorrect as buying and selling a floating rate bond would mean the utility will not have any funds that it wants to issue the note for, and combining it with interest rate futures would be just absurd.
Choice 'b' is incorrect as buying a floating rate note would use funds while the utility is trying to raise funds.

Explanation
Basis risk between spot and futures prices is the risk that the prices of the futures contract will not move in lockstep with the spot prices. Basis risk creates a problem when investors are trying to get exposure to a stock price through a futures contract, or are trying to hedge a position using a futures contract, and over time the prices of these two diverge.
To understand why basis risk arises, we need to think about how futures prices are determined. Futures prices are nothing but the spot prices plus the carrying cost, ie what it would cost for the seller of the contract to buy the spot security and hold it till the time of delivery in the future. During this holing period, the seller of the contract has to pay interest to fund his purchase in the spot market, and also receives and distributions such as dividends. In the case of commodity futures, he may also have to pay storage charges. When determining the futures prices, it is not known with complete certainty as to what the carrying costs will ultimately turn out to be - interest rates may change, dividends may turn out to be more or less, leading to changes in the futures prices without changes in the spot prices. This gives rise to basis risk.
Therefore changes to the risk free rate, which is a proxy for the true funding cost of the futures position and changes in expected dividends creates basis risk. Volatility of the underlying is irrelevant for futures.
Therefore Choice 'b' is the correct answer.