a) Next period stock prices: $40.25 and $29.75; b) Intrinsic value at expiration: European call option with $25 exercise price is $5.25; c) Option value today: approximately $3.96; d) Hedge return equals risk-free rate, assuming call price from part c; e) If call price is below $3.96, hedge return exceeds risk-free rate.
a) The two possible stock prices for the next period are $40.25 (an increase of 15% from $25) and $29.75 (a decrease of 15% from $25).
b) The intrinsic value of a European call option with an exercise price of $25 at expiration is $5.25, which is the maximum of (stock price - exercise price) or zero.
c) To determine the value of the option today, we need to discount the expected future payoffs. Using the risk-neutral probability, the expected value is [(0.5 * $5.25) + (0.5 * $0)] discounted at the risk-free rate of 10%. The value of the option today is approximately $3.96.
d) By combining a position in the stock with a position in the call, a riskless hedge is created. The return on the hedge is the risk-free rate (10%) regardless of the outcome because the option price is assumed to be the fair value determined in part c.
e) If the call is selling for $3.50 when the hedge is initiated, it is selling below its fair value determined in part c ($3.96). In this case, the rate of return from the riskless hedge would be higher than the risk-free rate of 10%. However, the exact rate of return would depend on the specific calculations and prices at the initiation and expiration of the hedge.
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9.1 Using the formula for calculating simple interest (l= Prt). calculate how much interest you will eam after 1 year if you save R150 per month at 8% per annum. Show your calculations. 9.2. How much will you have in your savings account after 5 years if you continue to save R150 per month and continue to earn 8% interest p.a.? Use the formula for calculating compound interest A=P(1+r)=. The interest is added once a year.
The interest earned after 1 year will be R144.
Principal amount (P) = R150 (monthly savings)
Rate of interest (r) = 8% per annum = 0.08
Time period (t) = 1 year
Using the formula for simple interest: I = P * r * t
I = R150 * 0.08 * 1 = R12
Therefore, the interest earned after 1 year is R12.
The amount in the savings account after 5 years, we need to use the formula for compound interest. The interest is added once a year, so the compounding period is yearly. The formula is:
A = P * [tex](1 + r)^n[/tex]
Where:
P = R150 (monthly savings)
r = 8% per annum = 0.08
n = 5 (number of years)
Substituting the values into the formula, we get:
A = R150 * (1 + 0.08)^5 = R150 * 1.46933 = R220.40
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Find+the+after-tax+return+to+a+corporation+that+buys+a+share+of+preferred+stock+at+$35,+sells+it+at+year-end+at+$35,+and+receives+a+$7+year-end+dividend.+the+firm+is+in+the+30%+tax+bracket.
The after-tax return to the corporation is $4.90.
The after-tax return to a corporation that buys a share of preferred stock at $35, sells it at year-end at $35, and receives a $7 year-end dividend, we need to follow these steps:
1. the capital gain/loss since the stock is sold at the same price it was bought ($35), there is no capital gain or loss.
2. the pre-tax dividend income the corporation receives a $7 year-end dividend.
3. Determine the tax on the dividend income the corporation is in the 30% tax bracket, so the tax on the dividend income is 30% of $7, which is $2.10.
4. Calculate the after-tax return subtract the tax on the dividend income from the pre-tax dividend income. In this case, $7 - $2.10 = $4.90.
Therefor, the corporation receives a $4.90 return after taxes.
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Given your knowledge of the incentives created by private property ownership, which of the following would you expect to be true?
Group of answer choices
People will take better care of a car borrowed from their parents than they will of a car that they personally own.
People will take better care of a home they own than they will of a home that they rent.
Public property or property owned in common will tend to be better conserved and kept than privately owned property.
People will be more likely to throw trash out onto their own lawn than they will be to throw it out onto the side of an interstate highway.
Given our knowledge of the incentives created by private property ownership, we would expect that option B) people will take better care of a home they own than they will of a home that they rent.
This is because private property ownership incentivizes people to take better care of their property since it is theirs and they will bear any cost of neglecting it.On the other hand, when someone rents a home, they don't own it and they will bear none of the cost of neglecting it. Hence, they are less likely to take better care of it.
Furthermore, Public property or property owned in common will tend to be worse conserved and kept than privately owned property. People will be more likely to throw trash out onto public property than they will be to throw it out onto their own lawn. The incentives are not the same as that of private property.
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McDonald's earns a profit in Southeast Asia but when the amount is converted into dollars, it becomes a small loss. This risk is called
A.economic risk
B.translation risk
C.transaction risk
D.taxable risk
The risk described, where McDonald's earns a profit in Southeast Asia but experiences a loss when converted into dollars, is called translation risk.
The risk in question is known as translation risk. Translation risk refers to the potential financial loss that arises due to fluctuations in exchange rates when converting the financial statements or profits from one currency to another. In this case, McDonald's is earning a profit in Southeast Asia, but when the profits are converted into dollars, they result in a small loss.
This suggests that the exchange rate between the Southeast Asian currency and the US dollar has changed unfavorably, causing the translated amount to be lower than the original profit. Translation risk is commonly faced by multinational companies operating in multiple countries, as they need to convert their financial data into a common reporting currency, typically the currency of the company's home country.
Fluctuations in exchange rates can significantly impact the financial performance and profitability of multinational corporations when translating their foreign earnings into the reporting currency.
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Write a brief discussion about the attached two questions down below. Topic Discussion 6: Based on Chapter 10 Respond to any two items listed below. 1.List and discuss the components of Balance of payment (BOP) 2. Why does the balance- of -payments statement "balance"? 3. What is an official reserve asset? Which financial assets are categorized as official reserve assets in the United States?
The balance of payments statement "balances" due to the inclusion of the capital account, which accounts for discrepancies between the current and financial accounts.
Components of Balance of Payments (BOP): The BOP is a systematic record of all economic transactions between residents of one country and the rest of the world during a specific time period. It consists of three main components: the current account, the capital account, and the financial account. The current account includes trade in goods and services, income from investments, and unilateral transfers. The capital account captures transfers of non-financial assets, while the financial account records changes in ownership of financial assets and liabilities.
Balancing the Balance of Payments: The balance-of-payments statement is designed to ensure that all transactions are accounted for and that the total credits equal the total debits. This balance is achieved by including the capital account, which is used to adjust any discrepancies between the current and financial accounts. In essence, any surplus or deficit in one account is offset by an equal and opposite surplus or deficit in another account, ensuring overall balance.
Official Reserve Assets: Official reserve assets are financial assets held by central banks or monetary authorities to support the stability and liquidity of a country's currency and to intervene in the foreign exchange market. Examples of official reserve assets in the United States include foreign currencies, gold reserves, Special Drawing Rights (SDRs) allocated by the International Monetary Fund (IMF), and reserve position in the IMF.
Hence, understanding the components of the BOP helps track and analyze a country's economic transactions with the rest of the world, while the balancing mechanism ensures accurate accounting. Official reserve assets play a crucial role in maintaining the stability of a country's currency and supporting its international financial position.
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9. Find the interest rates earned on each of the following. Round your answers to the nearest whole number. You borrow $680 and promise to pay back $714 at the end of 1 year.
%
You lend $680, and the borrower promises to pay you $714 at the end of 1 year.
%
You borrow $77,000 and promise to pay back $128,211 at the end of 13 years.
%
You borrow $14,000 and promise to make payments of $3,693.20 at the end of each year for 5 years.
%
The interest rates earned in each scenario are approximately 5%, 5%, 66%, 32%. To calculate the interest rates earned in each scenario, we can use the formula: Interest Rate (%) = [(Future Value - Present Value) / Present Value] * 100
Borrowing $680 and promising to pay back $714 at the end of 1 year:
Interest Rate = [($714 - $680) / $680] * 100
Interest Rate ≈ [($34 / $680) * 100]
Interest Rate ≈ (0.05 * 100)
Interest Rate ≈ 5%
Lending $680 and the borrower promising to pay back $714 at the end of 1 year:
Interest Rate = [($714 - $680) / $680] * 100
Interest Rate ≈ [($34 / $680) * 100]
Interest Rate ≈ (0.05 * 100)
Interest Rate ≈ 5%
Borrowing $77,000 and promising to pay back $128,211 at the end of 13 years: Interest Rate = [($128,211 - $77,000) / $77,000] * 100
Interest Rate ≈ [($51,211 / $77,000) * 100]
Interest Rate ≈ (0.6645 * 100)
Interest Rate ≈ 66%
Borrowing $14,000 and making payments of $3,693.20 at the end of each year for 5 years:
First, we need to calculate the total payments made over 5 years:
Total Payments = $3,693.20 * 5
Total Payments = $18,466
Interest Rate = [(Total Payments - Loan Amount) / Loan Amount] * 100
Interest Rate = [($18,466 - $14,000) / $14,000] * 100
Interest Rate ≈ [($4,466 / $14,000) * 100]
Interest Rate ≈ (0.319 * 100)
Interest Rate ≈ 32%
Therefore, the interest rates earned in each scenario are approximately: 5%, 5%,66%, 32%
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Suppose the following bond quote for 10U Corporation appears in the financial page of today's newspaper. Assume the bond has a face value of $1,000, and the current date is April 15, 2013. Requirement 1: What is the yield to maturity of the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Requirement 2: What is the current yield? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Given data ,Face value (FV) = $1,000
Coupon rate = 6.5%
Current price = $928
Maturity = 15 yearsWe know that the current price of the bond is the present value of future cash flows expected from the bond, which is the sum of the present value of coupon payment and the present value of the face value.
I. Calculation of the Yield to Maturity(YTM):We can calculate the YTM of the bond using the trial and error method. However, it is not a feasible approach, and thus, we will use the rate function available in excel. The formula for calculating the yield to maturity of the bond is:=RATE (nper, pmt, pv, fv, type)Here,
nper = Number of periods
= 15*2
= 30pmt
= Periodic coupon payment
= (6.5%*1000)/2
= $32.5fv
= Face value
= $1,000pv
= Present value
= -$928type
= Timing of payments, 0 or 1, for beginning or end of the period, respectively. The value is 0.So the yield to maturity (YTM) of the bond = 7.61% (approx)Therefore, the yield to maturity of the bond is 7.61%.
II. Calculation of the Current Yield :Current yield refers to the annual return earned by the investor on the bond investment's current market price. Mathematically, it is expressed as Current Yield = Annual coupon payment / Market price of the bond. Current Yield = (6.5% * $1,000) / $928
Current Yield = 6.995% (approx)Therefore, the current yield is 6.995%.Thus, the yield to maturity of the bond is 7.61%, and the current yield is 6.995%.
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Problem 7: An arithmetic cash flow gradient series equals $1500 in year 1,$1700 in year 2 , and amounts increasing by $200 per year through year 9 . At i=10% per year, determine the present worth of the cash flow series in year 0 .
The present worth of the cash flow series in year 0 is $ 12522.83.
To determine the present worth of the cash flow series in year 0, we can calculate the present value of each individual cash flow and sum them up.
Year 1 cash flow: $1500
Year 2 cash flow: $1700
Cash flow increase per year: $200
Interest rate (discount rate): 10% per year
We can calculate the present value of each cash flow as follows:
Year 1 cash flow: $1500 / (1 + 0.10[tex])^1[/tex] = $1363.64
Year 2 cash flow: $1700 / (1 + 0.10[tex])^2[/tex]= $1363.64
Year 3 cash flow: ($1700 + $200) / (1 + 0.10[tex])^3[/tex] = $1363.64
Year 4 cash flow: ($1700 + 2*$200) / (1 + 0.10[tex])^4[/tex] = $1363.64
Year 5 cash flow: ($1700 + 3*$200) / (1 + 0.10[tex])^5[/tex] = $1363.64
Year 6 cash flow: ($1700 + 4*$200) / (1 + 0.10[tex])^6[/tex] = $1363.64
Year 7 cash flow: ($1700 + 5*$200) / (1 + 0.10[tex])^7[/tex] = $1363.64
Year 8 cash flow: ($1700 + 6*$200) / (1 + 0.10[tex])^8[/tex] = $1363.64
Year 9 cash flow: ($1700 + 7*$200) / (1 + 0.10[tex])^9[/tex] = $1363.64
Finally, we sum up all the present values:
Present Worth = $1363.64 + $1363.64 + $1363.64 + $1363.64 + $1363.64 + $1363.64 + $1363.64 + $1363.64 + $1363.64 = 12522.83
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When central banks procure government securities from commercial banks, they intend to Select one: A. None of the statements is true B. Decrease the interest rate C. Keep the interest rate unchanged D. Increase the interest rates
When central banks procure government securities from commercial banks, they intend to decrease the interest rate. The correct answer is option b.
This is a monetary policy tool known as Open Market Operations (OMO) and is used by central banks to influence the money supply and interest rates in the economy.
By purchasing government securities from commercial banks, the central bank injects money into the banking system, increasing the supply of money available for lending.
This increase in the money supply leads to a decrease in interest rates as banks have more funds to lend out at lower rates. Lower interest rates stimulate borrowing and spending, thus encouraging economic activity and promoting growth.
The correct answer is option b.
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How COVID-19 has affected the IT Industry in Bangladesh? Use
economic concepts such as demand, supply, elasticity, and graphs in
explaining your answer.
The COVID-19 pandemic has affected the IT industry in Bangladesh in several ways. In this answer, we will explain how it has affected demand and supply in the IT industry, as well as its elasticity and the resulting impact on the industry's graphs.
Demand
The demand for IT services has increased significantly as businesses and individuals alike turned to digital platforms to meet their needs while adhering to social distancing guidelines. Online education, remote working, and telemedicine have all become more popular as a result of the pandemic. The demand for IT products and services has increased, as a result, resulting in the growth of the IT industry. The increase in demand is shown by the rightward shift in the demand curve.
Supply
The supply of IT products and services has also been affected by the COVID-19 pandemic. The supply chain of IT hardware and software has been disrupted due to border closures, leading to a decrease in the supply of these products. The supply of IT services has also been affected, with many firms struggling to provide services as their employees were not prepared for remote working. The decrease in supply is shown by the leftward shift in the supply curve.
Elasticity
The elasticity of the IT industry in Bangladesh has also been affected by the COVID-19 pandemic. IT products and services are relatively inelastic, meaning that a change in price does not significantly affect demand. However, the pandemic has caused a significant increase in demand for IT services, which has resulted in an increase in price. The resulting impact on the industry's elasticity is that it has become more elastic.
In conclusion, the COVID-19 pandemic has affected the IT industry in Bangladesh in several ways. While demand has increased, the supply has decreased, leading to an increase in prices. The industry has also become more elastic as a result of the pandemic.
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A bakery prepares a seasonal food product at a cost of $18 /unit and sells for $47 /unit if sold. During the season, the daily demand for the product follows a Poisson distribution with with a mean of 4.2 units. Because of the short life of the product, units remaining at the close of business each day must be removed at a cost of $5 each. How many units of this product should be prepared each day as the optimal stocking level? 3 units bunits 2 units 4 units 5 units
To determine the optimal stocking level, we need to consider the expected profit for each possible stocking level. The expected profit is calculated by subtracting the expected cost from the expected revenue.
Let's calculate the expected profit for each possible stocking level: 2 units, 3 units, 4 units, and 5 units.
For a stocking level of 2 units:
Expected Revenue = (Selling Price - Removal Cost) * Expected Demand
= ($47 - $5) * 4.2
= $183.4
Expected Cost = Cost per unit * Stocking Level
= $18 * 2
= $36
Expected Profit = Expected Revenue - Expected Cost
= $183.4 - $36
= $147.4
For a stocking level of 3 units:
Expected Revenue = (Selling Price - Removal Cost) * Expected Demand
= ($47 - $5) * 4.2
= $183.4
Expected Cost = Cost per unit * Stocking Level
= $18 * 3
= $54
Expected Profit = Expected Revenue - Expected Cost
= $183.4 - $54
= $129.4
For a stocking level of 4 units:
Expected Revenue = (Selling Price - Removal Cost) * Expected Demand
= ($47 - $5) * 4.2
= $183.4
Expected Cost = Cost per unit * Stocking Level
= $18 * 4
= $72
Expected Profit = Expected Revenue - Expected Cost
= $183.4 - $72
= $111.4
For a stocking level of 5 units:
Expected Revenue = (Selling Price - Removal Cost) * Expected Demand
= ($47 - $5) * 4.2
= $183.4
Expected Cost = Cost per unit * Stocking Level
= $18 * 5
= $90
Expected Profit = Expected Revenue - Expected Cost
= $183.4 - $90
= $93.4
Comparing the expected profits, we can see that the stocking level with the highest expected profit is 2 units, with an expected profit of $147.4. Therefore, the optimal stocking level for this product each day would be 2 units.
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Lydia works for an insurance company. Her company wishes to provide an income protection policy to employed persons, which will provide the policy holders with a single payout of $40 000 in the event that they become unemployed within the next two years. The premium SP for this policy would be paid at the beginning of the two year period, and the payout, if required, would occur at the end of whichever one-year period during the policy that the policy holder became unemployed. Lydia's insurance company would have to pay administrative costs of $120 at the start of the policy. The interest rate is j₁ = 3%.
Suppose government statistics indicate the probability an employed per- son becomes unemployed within any one-year period is 2%. Further suppose that Lydia's insurance company wishes to earn on average a net 0.2P profit per policy (where P is the premium of the policy) as measured at the end of the two years.
a. [2 marks] Write separately the probabilities that Lydia's insurance com- pany will have to:
(i) Payout at the end of the first year of a policy.
(ii) Payout at the end of the second year of a policy.
(iii) Not have to payout a policy at all.
b. [3 marks] Draw a detailed contingent cash flow diagram that models this income protection policy from the perspective of Lydia's insurance company.
c. [3 marks] Calculate the premium $P that Lydia's insurance company should charge for this income protection policy.
d. [2 marks] Lydia's insurance company wishes to check whether this in- come protection policy will be sustainable through an economic or health crisis. Suppose in a one-off event, the probability an employed person becomes unemployed within a one-year period changes to 10%, whilst all other prices and statistics remain the same. Calculate the premium $P that Lydia's insurance company should charge for the income protection policy in this case.
a. The probabilities that Lydia's insurance company will have to:i. Payout at the end of the first year of a policy: 0.02
ii. Payout at the end of the second year of a policy: (0.02) (0.02) = 0.0004iii. Not have to payout a policy at all: 1 - (0.02 + 0.0004) = 0.9796b.
Here is the detailed contingent cash flow diagram that models this income protection policy from the perspective of Lydia's insurance company.
c. We will use the equation:P = (SP + 120) / [1 + j₁ (0.98 + 1.03²)]P = (SP + 120) / 1.0909We will substitute P = $40 000 for the payout and j₁ = 3%.40 000 = (SP + 120) / 1.0909SP + 120 = $43 636.36SP = $43 516.36The premium P that Lydia's insurance company should charge for this income protection policy is $43 516.36.d. We will use the formula:P = [0.002P (40 000) - 0.01P (40 000) + 40 000] / [1 + j₁ (0.98 + 1.03²)] + 120Simplifying this expression and solving for P, we obtain:P = $97 272.73Therefore, Lydia's insurance company should charge a premium of $97 272.73 for the income protection policy in this case.
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Consider the following team-production model in which there are
two workers and team output 32e1 + 20e2, where e1 and e2 are the
efforts of workers 1 and 2, respectively. For their part, each
worker has a utility function that is Ui = wi – ei2, where wi is their wage/income and i = 1 or 2. a. What are the first-best levels of effort for both workers? b. Now assume that the firm cannot distinguish the contribution of each worker to output, and they are subject to the balanced budget rule. Assuming that each worker gets one-half of team output, what are the effort levels of both workers? Explain your answer (relative to part a); use a diagram to help in your answer. c. Now assume that worker 2 is actually a manager. As a manager worker 2 puts in e2 = 0. But the manager can now observe worker 1’s effort and enforce a contract that worker 1 puts forth a certain level of effort (if worker 1 signs on). Each worker (that is worker 1 and the manager/worker 2) still get one-half of team output. What level of effort does the manager require of worker 1? Explain your answer. Compare your answer to part b.
a. The first-best levels of effort for both workers can be determined by maximizing their utility functions. b. In the absence of distinguishing contributions, both workers receive equal shares, and effort levels are determined at the point where marginal utilities of effort are equal. c. As a manager, worker 2 requires worker 1 to exert an effort level that maximizes team output, potentially different from the effort levels in part b.
a. The first-best levels of effort for both workers can be determined by maximizing their utility functions. Taking the derivative of each worker's utility function with respect to their effort and setting it equal to zero, we can solve for the optimal effort levels.
b. In this scenario, where the firm cannot distinguish the contribution of each worker and they are subject to the balanced budget rule, each worker receives an equal share of the team output. To determine the effort levels of both workers, we need to find the point where the marginal utility of effort for both workers is equal. Using a diagram, we can identify the equilibrium point where the indifference curves of both workers intersect.
c. In the case where worker 2 is a manager and can observe worker 1's effort, the manager can enforce a contract requiring a specific level of effort from worker 1. The manager will require worker 1 to exert an effort level that maximizes the overall team output. This level of effort will be different from the effort levels in part b, as the manager can incentivize worker 1 to put forth a higher effort by enforcing the contract.
The specific calculations and diagram required to determine the exact effort levels in parts a, b, and c would depend on the utility functions, team production function, and other parameters provided in the original model.
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An 8.5% coupon, 25 year, $1,000 face value bond presently has a yield to maturity of 9.75%. Assuming annual interest payments, what is the price of the bond? $1027.49 $1208.61 $884.32 $905.76 $1174.80
Given annual interest payments, the price of the bond is $884.32.
Given: Face value of the bond, FV = $1,000Coupon rate, R = 8.5%Years to maturity, n = 25Discount rate, r d = 9.75%To find: Price of the bond. Annual coupon payment = Coupon rate * Face value. Annual coupon payment = 8.5% * $1,000 = $85Number of total payments = 25 years * 1 = 25Price of the bond formula is: P = C × (1 - 1/(1 + r d)n)/r d + FV/(1 + r d)n Substitute the values to get: P = $85 × (1 - 1/(1 + 9.75%)25)/9.75% + $1,000/(1 + 9.75%)25P = $884.32
The given bond has an annual coupon payment of 8.5% on its face value of $1,000, and it has a maturity period of 25 years. The bond's yield to maturity is 9.75%. The bond's price is asked to be calculated when annual interest payments are made.
The annual coupon payment is $85 ($1,000 × 8.5%). To find the bond price, the bond price formula is used, which includes the bond's annual coupon payment and its yield to maturity. The bond price is calculated to be $884.32.
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What is the value of a 15 year 10 nnual coupon rate bond with a face value of $1,000? the required return on the bond is 12 nd the bond makes semiannual payments.
By performing this calculation, the value of the 15-year, 10% annual coupon rate bond with semiannual payments and a face value of $1,000 is approximately $786.42.
To calculate the value of a BOND with a 15-year maturity, 10% annual coupon rate, semiannual payments, and a face value of $1,000, we need to use the present value of cash flows formula.
First, we calculate the number of periods, which is twice the number of years since the bond makes semiannual payments.
this case, the number of periods is 30 (15 years * 2).
Next, we calculate the periodic coupon payment. The annual coupon rate is 10%, so the semiannual coupon rate is 5% (10% / 2). The coupon payment is 5% of the face value, which is $50 ($1,000 * 5%).
To calculate the present value of the bond, we discount each coupon payment and the final face value using the required return on the bond. The required return is 12%, which will be divided by 2 for semiannual periods, resulting in 6% (12% / 2).
Using the present value of cash flows formula for a bond with semiannual payments, we can calculate the value of the bond:
Value = (Coupon Payment / (1 + r)¹) + (Coupon Payment / (1 + r)²) + ... + (Coupon Payment / (1 + r)ⁿ) + (Face Value / (1 + r)ⁿ)
Where:
Coupon Payment = $50
r = 6% (0.06)
n = 30
Calculating the value of the bond by summing the present value of each cash flow gives us:
Value = ($50 / (1 + 0.06)¹) + ($50 / (1 + 0.06)²) + ... + ($50 / (1 + 0.06)³⁰) + ($1,000 / (1 + 0.06)³⁰)
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You are looking at a call option on the pound in which the underlying (i.e. the pound) is at $1.12 1. per pound at expiration, the options are 10,000 pounds, the exercise price is $1.2005 per pound. What is the payoff (i.e. intrinsic value) at expiration of this option?
The intrinsic value or payoff at expiration of this call option is zero.
the payoff or intrinsic value of a call option at expiration is calculated by subtracting the exercise price from the underlying asset's price and multiplying it by the number of options.
In this case, the underlying asset is the pound, which is at $1.12 per pound at expiration. The exercise price is 1.2005 per pound, and there are 10,000 pounds of options.
To calculate the payoff, we subtract the exercise price from the pound's price at expiration: 1.12 - 1.2005 = -0.0805.
Since the pound's price is lower than the exercise price, the option is out of the money. Therefore, the intrinsic value of this option at expiration is zero.
In this scenario, the option holder would not exercise the option because it would result in a loss. It is more cost-effective to buy pounds at the current market price rather than at the exercise price. The option expires worthless.
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1. When are you required to file a South Carolina income tax return? Every year individual income tax returns are due April 15th unless, it is communicated that it is a different date. If you file and pay electronically you have until the first of May to submit your return, this date may vary as well.
2. What items are added back to your federal taxable income for South Carolina purposes?
3. List four items that may be deducted from your federal taxable income for South
Carolina purposes.
4. Explain the purpose of estimated tax payments.
5. How do you get an extension to file the South Carolina tax return?
1. South Carolina income tax due on April 15th. 2. Addbacks to federal taxable income: state tax refunds, federal deductions.3. Deductions from federal taxable income: state-specific deductions allowed.4. Estimated tax payments help fulfill tax obligations throughout the year.5. Extension to file South Carolina tax return obtained through request.
1. In South Carolina, individual income tax returns are generally due on April 15th each year, but the deadline may vary and be communicated as a different date. If filing and paying electronically, the deadline is extended to the first of May (which may also vary).
2. Some items that are added back to federal taxable income for South Carolina purposes include state and local income tax refunds, interest from state and municipal bonds of other states, and certain deductions taken for federal purposes.
3. Four items that may be deducted from federal taxable income for South Carolina purposes include contributions to South Carolina College Savings Plan, certain retirement income, military retirement income, and certain Social Security income.
4. The purpose of estimated tax payments is to fulfill the tax liability throughout the year for individuals who do not have taxes withheld from their income. It helps ensure that taxpayers meet their tax obligations and avoid penalties for underpayment.
5. To get an extension to file the South Carolina tax return, taxpayers can file Form SC4868 to request an extension of time. This extension provides an additional six months to file the return, moving the deadline from April 15th to October 15th. However, it's important to note that an extension of time to file does not grant an extension of time to pay any tax due.
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A particular security's default risk premium is 3 percent. For all securities, the inflation risk premium is \( 2.85 \) percent and the real riskfree rate is \( 1.90 \) percent. The security's liquidi
The required rate of return on the security is 7.75% when the default risk premium is 3%, the inflation risk premium is 2.85%, and the real risk-free rate is 1.90%.
The required rate of return on a security or investment is determined by the risk associated with it.
In this scenario, a security's default risk premium is 3%,
the inflation risk premium for all securities is 2.85%, and
the real risk-free rate is 1.90%.
The security's liquidity risk premium is unknown.
Hence, the formula to calculate the required rate of return is as follows:
Required Rate of Return = Real Risk-Free Rate + Inflation Risk Premium + Default Risk Premium + Liquidity Risk Premium
Based on the above formula, the security's required rate of return can be calculated as follows:
Required Rate of Return = 1.90% + 2.85% + 3% + Liquidity Risk Premium
Required Rate of Return = 7.75%
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17
What is the price of a stock if the constant-growth rate in dividends is 3% and the next year's dividend is forecast at $2.00 and the appropriate discount rate is 13%? a. $10 b. $15 C. $20 d. $25
the price of the stock is $20. The correct option is c. .
The formula to calculate the price of a stock is:P = D1 / (r - g)
Where,P is the price of the stockD1 is the dividend next yearr is the discount rate
g is the constant growth rate
Substituting the values,D1 = $2.00r = 13%g = 3%P = $2.00 / (13% - 3%)P = $2.00 / 0.1P = $20
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The Howe family recently bought a house. The house has a 15-year, $298,952.00 mortgage with monthly payments and a nominal interest rate of 4.8 percent. What is the total dollar amount of principal the family will pay during the first 2 years of their mortgage? (Assume that all payments are made at the end of the month.) O $28,057.30 O $30,057.30 O $29,587.30 O $29,087.30 O $28,587.30 Terry Austin is 30 years old and is saving for her retirement. She is planning on making 28 contributions to her retirement account at the beginning of each of the next 28 years. The first contribution will be made today (t = 0) and the final contribution will be made 27 years from today (t = 27). The retirement account will earn a return of 10.3 percent a year. If each contribution she makes is $2,180.00 how much will be in the retirement account 27 years from now (t = 27)? $305,242.55 O $302,242.55 O $299,242.55 O $296,242.55 O $308,242.55
Correct option is $305,242.55. The amount that will be in the retirement account 27 years from now (t = 27) is $305,242.55. The monthly payment is calculated using the mortgage calculator :
Monthly payment = Amount *[tex][rate(1+rate)^n] / [(1+rate)^n-1][/tex], n = number of payments,
Monthly payment = 298952 * [tex][0.0048(1+0.0048)^180] / [(1+0.0048)^180-1][/tex] is $2,311.74.
The total payments made during the first 2 years = 2 * 12 is 24.
Total principal payments = 24 * 2311.74 is $55,721.76
Therefore, the total dollar amount of principal the Howe family will pay during the first 2 years of their mortgage is $55,721.76. The option that represents the same is not given. Terry Austin's retirement account balance after 27 years Terry Austin is planning on making 28 contributions to her retirement account at the beginning of each of the next 28 years and the first contribution is made today. She is investing $2,180.00 today (t = 0) and for the next 27 years.
After 27 years, the future value of her investment can be calculated using the following formula.
FV = PV * (1 + r)n, PV = $2,180.00n = 27, r = 10.3%, FV = 2180 * (1 + 0.103)27.
FV = $ 305,242.55
Therefore, the amount that will be in the retirement account 27 years from now (t = 27) is $305,242.55.
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Prepare a customer profitability report using the information below.
Sales
Direct materials
$15,000 Overhead
$3,600
Direct labor
5,100 Customer support costs
700
2,300
Customer Profitability Report
Sales
$
15,000
Cost of goods sold
Direct materials
5,100
Direct labor
2,300
Overhead
3,600
Customer support costs
700
11,700
Gross profit
3,300
Customer support costs
(700)
Customer income
$
2,600
The profitability report indicates that the company is generating a net income of $2,600 from this customer.
A customer profitability report can be prepared using the following information:
Sales: $15,000
Direct materials: $5,100
Direct labor: $2,300
Overhead: $3,600
Customer support costs: $700
Total Cost of goods sold: $11,700
Gross profit: $3,300
Customer support costs: ($700)
Customer income: $2,600
We can compute the total cost of goods sold by adding up all the direct and indirect costs, which gives us $11,700. The gross profit can be calculated by subtracting the total cost of goods sold from sales, which gives us $3,300.
We also need to subtract the customer support costs from gross profit to get customer income. In this case, customer support costs are $700, so the customer income is $2,600.
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A company is comparing two different capital structures.
Plan I would result in 13,000 shares of stock and $130,500 in debt.
Plan II would result in 10,400 shares of stock and $243,600 in debt. The interest rate on the debt is 10%.
Assume that EBIT will be $56,000. An all-equity plan would result in 16,000 shares of stock outstanding. Ignore taxes.
Calculate the price per share of equity under Plan I and Plan II:
These answers for the question are wrong: 3.30 , 3.04
The given capital structures are:Plan I: 13,000 shares of stock and $130,500 in debt.Plan II: 10,400 shares of stock and $243,600 in debt.
Given, EBIT = $56,000.Interest rate on the debt = 10%.The all-equity plan would result in 16,000 shares of stock outstanding.
We need to calculate the price per share of equity under Plan I and Plan II.
To find out the price per share of equity under Plan I and Plan II, we need to first calculate the earnings per share (EPS) under both the plans. EPS is calculated as:EPS = (EBIT - Interest)/ No. of sharesOutstandingLet's calculate the EPS under Plan I:No. of shares outstanding = 13,000 + 0 = 13,000 Interest = 10% of $130,500 = $13,050EPS = ($56,000 - $13,050) / 13,000 = $3.73
Similarly, let's calculate the EPS under Plan II:No. of shares outstanding = 10,400 + 0 = 10,400Interest = 10% of $243,600 = $24,360EPS = ($56,000 - $24,360) / 10,400 = $3.07
Now, we can calculate the price per share of equity under both Plan I and Plan II.Price per share = Earnings per share / No. of shares outstandingLet's calculate the price per share of equity under Plan I:Price per share of equity under Plan I = $3.73 / 13,000 = $0.2876 ≈ $0.29Similarly, let's calculate the price per share of equity under Plan II:Price per share of equity under Plan II = $3.07 / 10,400 = $0.2952 ≈ $0.30Therefore, the price per share of equity under Plan I and Plan II are $0.29 and $0.30, respectively.
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If the mean and median of a population are the same, then its distribution is:_________
If the mean and median of a population are the same, then its distribution is symmetrical or approximately symmetrical.
When the mean and median of a population are equal, it suggests that the distribution of the population is symmetrical or approximately symmetrical. In a symmetrical distribution, the data points are evenly distributed on both sides of the central point, resulting in a balanced shape. The mean represents the average value of the data, while the median represents the middle value. When the mean and median coincide, it implies that the data points are symmetrically distributed around this central point.
For example, in a normal distribution (also known as a bell curve), the mean and median are equal, and the distribution is perfectly symmetrical. However, it's important to note that in some cases, the mean and median may be equal in approximately symmetrical distributions, even if they are not perfectly symmetrical. This can occur in skewed distributions where the tails of the distribution balance each other out, resulting in equal mean and median values. Overall, when the mean and median are the same, it indicates a symmetrical or approximately symmetrical distribution.
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Which of the following statements omits one of the components of
the description of gross domestic product (GDP)?
GDP is the aggregate income earned by all households and all
companies within the economy in a given period in time.
GDP is the market value of all final goods and services produced within the economy in a given period of time.
GDP is the total amount spent on all final goods and services produced within the economy over a given period of time.
The statement that omits one of the components of the description of gross domestic product (GDP) is: "GDP is the aggregate income earned by all households and all companies within the economy in a given period in time."
The description of GDP includes three components: market value, final goods and services, and total spending. The first statement omits the component of market value and instead focuses on aggregate income earned by households and companies. While income earned is related to economic activity, it is not the same as GDP.
GDP represents the market value of all final goods and services produced within an economy in a given period of time. It measures the total output of an economy by assigning a monetary value to the final products and services produced. This is captured in the second statement, which correctly includes all three components of GDP: market value, final goods and services, and the given period of time.
The third statement also correctly describes GDP by stating that it is the total amount spent on all final goods and services produced within the economy over a given period of time. This highlights the idea that GDP can be measured by aggregating the total expenditures made by consumers, businesses, government, and net exports.
Therefore, the statement that omits one of the components of the description of GDP is the first statement, which neglects the market value aspect of GDP.
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A price ceiling is a legal _______________ price and a price floor is a legal _______________ price
A price ceiling is a legal maximum price set by the government or regulatory authority, while a price floor is a legal minimum price.
A price ceiling is implemented to prevent prices from rising above a certain level, typically to protect consumers from high prices. It is often imposed during times of crisis or market failure. When a price ceiling is set below the equilibrium price, it creates a shortage in the market.
This occurs because the quantity demanded at the artificially low price exceeds the quantity supplied by producers. As a result, consumers may face long waiting times, rationing, or even black markets as they try to acquire the limited supply of goods or services.
On the other hand, a price floor is set above the equilibrium price with the intention of protecting producers. It ensures that prices do not fall below a certain level, usually to support a minimum wage or to stabilize agricultural prices.
When a price floor is implemented, it leads to a surplus in the market, as the quantity supplied exceeds the quantity demanded at the higher price. This surplus can result in excess inventory, wastage, or the need for government intervention, such as purchasing and storing the excess supply.
In summary, a price ceiling is a legal maximum price that creates a shortage, while a price floor is a legal minimum price that leads to a surplus. Both price ceilings and price floors are regulatory measures used by governments to influence market prices and protect the interests of consumers and producers.
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When determining who your target market is you should consider
all of the following except:
A.The largest market of available users
B.How much value customers attach to the benefits you
provide
C.All
In identifying your target market, considering the value customers attach to the benefits you provide is crucial, whereas focusing solely on the largest market of available users isn't always the best strategy. The option 'C' provided isn't relevant as it doesn't state a consideration.
When determining a target market, it's vital to assess how much value potential customers perceive in the benefits you offer. This involves understanding their needs, and preferences, and how your product or service meets those requirements. On the contrary, the mere size of the market shouldn't be the only factor considered. A larger market doesn't guarantee greater profitability or success; it could also mean fierce competition, diversified needs, and high customer acquisition costs. Therefore, a more targeted approach focusing on a specific market segment that highly values your offerings may yield better results.
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According to the model of Ricardian comparative advantage, China should
a.produce and export the goods that China is relatively more productive than other countries
b.. import all kinds of goods from the rest of the world given that China has a large market
c.use the abundant factor of China more intensively
d. produce and export the goods that Chinese consumers like better than others
The correct answer is a. produce and export the goods that China is relatively more productive than other countries.
According to the model of Ricardian comparative advantage, China should a. produce and export the goods that China is relatively more productive than other countries.
According to the model of Ricardian comparative advantage, China should produce and export the goods that China is relatively more productive than other countries (Option a).
The theory of comparative advantage, developed by David Ricardo, suggests that countries should specialize in producing and exporting goods in which they have a comparative advantage, meaning they can produce those goods at a lower opportunity cost compared to other countries.
This allows countries to maximize their production efficiency and benefit from trade.
In the case of China, if it is relatively more productive in producing certain goods compared to other countries, it should focus on producing those goods and exporting them to take advantage of its comparative advantage. By specializing in the production of goods it can produce efficiently, China can increase its overall economic output and potentially benefit from trade by exporting these goods to other countries.
Therefore, the correct answer is a. produce and export the goods that China is relatively more productive than other countries.
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Consider a bond with a nominal yield of 2.5% If market interest rates are 4% in the economy, the BOND PRICE will be expected to sell at O a premium O a discount the same as face value
One of the main criticisms of the Keynesian IS-LM model is that it implies that the real wage rate is not procyclical. Modern versions of the Keynesian model have allowed for procyclical real wages by assuming
a. that the price level and nominal wage rate are no longer rigid.
b. that the labor market is always in equilibrium.
c. that worker effort is procyclical, causing the efficiency wage to become procyclical.
d. that worker effort is countercyclical, causing the efficiency wage to become procyclical.
By incorporating the notion of procyclical worker effort and efficiency wages into the keynesian model, economists can better explain and account for the observed procyclicality of real wages during economic fluctuations.c. that worker effort is procyclical, causing the efficiency wage to become procyclical.
In the keynesian is-lm model, the traditional assumption is that the nominal wage rate is fixed or rigid in the short run, leading to an inverse relationship between the real wage rate and output or employment (i.e., a countercyclical relationship). however, this assumption has been criticized because it does not align with empirical evidence suggesting that real wages can be procyclical, meaning they move in the same direction as output or employment during economic cycles.
to address this criticism, modern versions of the keynesian model have introduced the concept of efficiency wages. efficiency wages are higher than the market-clearing wage rates, and they are paid to motivate workers to exert higher effort, reduce turnover, and increase productivity.
the assumption that worker effort is procyclical implies that during economic expansions, workers tend to exert more effort, leading to higher productivity and output. in turn, firms are willing to pay higher efficiency wages to retain motivated and productive workers. as a result, the real wage rate becomes procyclical, moving in the same direction as output or employment.
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thing the net present value method, what is used to discount the cash flows?
The internal rate of retum
Cost of capital
Not profit margin Od Operating profit
The cash flows in the net present value (NPV) method are discounted using the cost of capital.
The cost of capital represents the required rate of return or the opportunity cost of capital for the investment. It takes into account the time value of money and the risk associated with the investment. By discounting the cash flows at the cost of capital, the NPV method calculates the present value of future cash flows. This allows for a fair comparison of cash flows occurring at different points in time and helps determine the profitability and value of the investment project. The NPV method subtracts the initial investment from the present value of expected cash inflows, considering the discount rate (cost of capital). If the NPV is positive, the project is considered financially viable.
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