Premium Essay

Fina 4512 Problem Set 1 Solutions

In: Business and Management

Submitted By Misanthropo
Words 945
Pages 4
FINA 4512
Problem Set 1
Choose the best answer for each question. Answer all questions. http://www.encyclopedia.com/doc/1G2-3045001189.html

1) American Standard Co. has a 90 day £1 million receivable. American Standard’s bank, Bank of America, suggests a 90 day forward contract. American Standard sells forward £1 million. American Standard is: a) Hedging. b) Speculating. c) Locking in an arbitrage profit.

Answer: Part a) Hedging is the correct answer.
-------------------------------------------------

2) American Standard Co. has a 90 day £62,500 receivable. American Standard’s bank, Bank of America, suggests a put option contract that matures in 90 days. American Standard purchases one put option contract, where one contract corresponds to a quantity of £62,500. American Standard is: a) Hedging. b) Speculating. c) Locking in an arbitrage profit.

Answer: Part a) Hedging is the correct answer. Because in this case, the American Standard Co is sure about the money to be received and wants to hedge against the exchange rate risk which is hedging.
-------------------------------------------------

3) American Standard Co. has a 90 day £62,500 receivable. American Standard’s bank, Bank of America, suggests a call option contract that matures in 90 days. American Standard purchases one call option contract, where one contract corresponds to a quantity of £62,500. American Standard is: a) Hedging. b) Speculating. c) Locking in an arbitrage profit.

Answer: Part a) Hedging is the correct answer and not locking in an arbitrage profit, because in this case, the American Standard Co is sure about the money to be received and wants to hedge against the exchange rate risk which is hedging.
-------------------------------------------------

4) Today’s spot price for gold is $1000. The 90 day…...

Similar Documents

Premium Essay

Unit 1 Problem Set 1: Scientific Method Applied Problem Sets

...Unit 1 Problem Set 1: Scientific Method Applied Problem Sets Problem Set 1 1. A Null Hypothesis refers to a hypothesis that is going to be, or needs to be tested for validity. According to Wikipedia, a Null Hypothesis also refers to the testing of sets of data that appear to have no correlation together that need validation. This is critical in the scientific method because it constitutes whether or not theories that are formulated are correct, incorrect, or in need of adjustments/edits. When a researcher formulates a theory based on one set of data elements and then there is another set of data elements that may or may not refute the theory, a null hypothesis is formed for research and validation. The scientific method is all about trying to figure out the world we live in and how it works based on what we observe, though what we observe may or may not be all of what is involved thus pushing us to proving what we observe to further learn and explain the world around us. 2. Null: Exposure to mercury does not affect the thickness of bird eggshells. Alternative: Exposure to mercury does affect the thickness of bird eggshells. Null: Salt used on roads in winter does not affect the size of plants living by the roadside. Alternative: Salt used on roads in winter does affect the size of plants living by the roadside. Null: Oil covering gulls does not affect the gull's ability to fly. Alternative: Oil covering gulls does affect the gull's ability to......

Words: 316 - Pages: 2

Premium Essay

Mba510 Problem Set 1

...Week 3 Problem Set 1: Chapter 3: 62, 72 62) The Citizens Banking Company is studying the number of times the ATM located in a Lob laws Supermarket at the foot of Market Street is used per day. Following are the numbers of times the machine was used over each of the last 30 days. Determine the mean number of times the machine was used per day. 83 64 84 76 84 54 75 59 70 6163 80 84 73 68 52 65 90 52 7795 36 78 61 59 84 95 47 87 60 Answer: The ATM machine was used a mean number of times 70. 53. 72.) The weights (in pounds) of a sample of five boxes being sent by UPS are: 12, 6, 7, 3, and 10. 1. Compute the range. 3-12 2. Compute the mean deviation. 7.6 3. Compute the standard deviation. Chapter 5, 66 66) A survey of undergraduate students in the School of Business at Northern University Revealed the following regarding the gender and majors of the students: Major Gender Accounting Management Finance Total |Gender |Accounting |Major/management |Finance |Total | |Male |100 |150 |50 |300 | |Female |100 |50 |50 |200 | |Total |200 |200 |100 |500 ......

Words: 478 - Pages: 2

Free Essay

Problem Set 1

...Problem Set 1 MGT-309 – Intro to Logistics Management November 23, 2014 Cosme Lucio Professor Jerry Bilbrey 2a. 2*8*44,000=704,000 .12*.75=.09 704,000/.09= 7,822,222.222222222 = 2796.823595120404 = 2797 2b. Inventory Carrying Costs = (2,797/2)*0.75*12% = $125.87 Order Costs = (44,000/2797) = 15.73 = 16, 16*$8(per order) = $128.00 Transportation Costs = 44,000 units *0.05 per unit = 2,200 (Q=2,797) = 125.87+128+2,200= 2453.87 Inventory Carrying Costs = (4,000/2)*.075*12% = $180 Order Costs = 44,000/4,000 = 11orders, 11orders*$8 per order = $88 Transportation Costs = 44,000*$0.04 per unit = $1760.00 (Q=4,000) = 180+88+1,760 = 2,028 2c. 4,000 CUPS = 11 orders, 33 days between orders 4a. Common days’ supply of chocolate chewies at DC: DS= [(42,000 – 7,000) + 18,500]/4,500 = 11.8888889 = 12(Rounded Up) 4b. Fair Share Allocation Logic: Cincinnati Allocation = (11.8888889 * 2,500) – 12,500 = 17,222.2222 Phoenix Allocation = (11.8888889 * 2,000) – 6,000 = 17,777.7778 6a. Yes. The demand never exceeded what was in stock and causing a stockout. 6b. SD = 1.811 6c. Yes. The frequency wasn’t out of bounds with mean, mode, median. 6d. SD = 1.095445 6e. SD of Combined Probabilities = 6 6g. f(k) = 0.061667 6h. k = 1.1, Required safety stock for the desired 99 percent is 6.42 with an average inventory of 36 6i....

Words: 252 - Pages: 2

Free Essay

Problem Set 1 Industrial Organization

...Problem Set 1 1. MPL = 30 MPL/MPK = w/r MPK = 24 r = 15 30/24 = w/15 w = 18.75 2a. A = E > C = B > D 2b. A = C > B 3a. Q = 5KLL w = 8 r = 15 MPL/MPK = w/r = 8/15 3b. rK = (15)(10) = 150 wL = 150 8L = 150 L = 18.75 4a. Q = 2KLLL K = 2 Q = 2(2)LLL = 4LLL At L = 1, Q = 4 At L = 2, Q = 32 At L = 3, Q = 108 At L = 4, Q = 256 MPL for 4th worker = 256 - 108 = 148 4b. This production function exhibits increasing returns to scale. 5a. AVC = ATC since AFC = 0 Price = 2.50 MC = 1.20 5b. No, they are not at a long run equilibrium, producers are benefiting for a surplus and in a long run more firms will enter the industry bringing the surplus to 0, pricing will be at P = MC. 6. Rule of thumb pricing P = MR = MC MR = P + P (1/E) = MC P = MC/ ((1 + (1/E)) C = 125 + 25Q MC = dC/dQ = 25 P = 25/((1 +(1/-3)) = 37.5 7a. P = 1100 - 2Q C=Q Total Revenue = P x Q = (1100 -2Q) x Q = 1100Q – 2QQ Marginal Revenue = dTR/dQ = 1100 – 4Q Marginal Cost = dC/dQ = 1 MR = MC 1100 – 4Q = 1 Q = 274.75 P = 550.5 7b. MC=1 MR = 550.5 Markup = (P – MC)/P = 0.9982 = 99.82% 7c. Profit =......

Words: 255 - Pages: 2

Premium Essay

Economics Problems Set 1

...MBA-FP6008: Assessment 1, Economics Problem Set 1 Dennis J. Johnson Capella University 08/12/2015 Problems A, B, and C Introduction This assessment will be an analysis of graphed data and changes in supply and demand for three economic problems. Problem A involves production possibilities for consumer and capital goods, problem B is an evaluation of changes in supply and demand equilibrium, and finally, problem C involves pricing with relevance to supply and demand. Successful completion of this assessment demonstrates proficiency in; applying theories, models, and practices of economic theory, analyzing solutions with support from relevant data, resources, references, and economic principles, analyzing graphed and circular flow diagram data, and analyzing changes in supply and demand in a competitive market. Problem A. Production Possibilities | Type of Production | Production Alternative A | Production Alternative B | Production Alternative C | Production Alternative D | Production Alternative E | Butter | 0 | 1 | 2 | 3 | 4 | Guns | 15 | 14 | 12 | 9 | 0 | Production Possibilities for Consumer Goods (Guns) and Capital Goods (Butter) 1. The specific assumptions that underlie the production possibilities curve are: that there are only two goods, consumer and capital, that they are produced in different proportions in the economy, the quantities of the resources do not change, production techniques are given and constant, and that resources......

Words: 1353 - Pages: 6

Premium Essay

Problem Set 1

...Problem 1 a. What do you expect tuition and housing at top private schools to cost during Mary’s first year at college? PV=35,000; r=4%; N=18-5=13 FV=PV*(1+r)n =35,000*1+4%13 =58277.57 b. In nominal dollars, how much must be in the savings account on Mary’s 18th birthday after the last deposit has been made but before the first tuition and housing payment? PV18=58277.57; g=4%; r=10%*(1-τ)=10%*(1-30%)=7%; N=3 Pmt19=PV18*1+g=58277.57*1+4%=60608.67 The present value of year 18-21 at 18th year is: PV18-21=PV18+Pmt19r-g(1-(1+g1+r)N) =58277.57+60608.677%-4%1-1+4%1+7%3 =223488.53 c. What should be the amount of the first deposit to the savings account? FV=223488.53; r=10%*(1-τ)=10%*(1-30%)=7%; g=2%; N=18-5=13 Pmt1=FV1+rN-1+gNr-g =223488.531+7%13-1+2%137%-2% =10010.79 d. Alternatively, Mary’s parents could open a 529 account that allows college savings to grow tax-free. If they saved in this account rather than in a normal investment fund, and still earned the same pre-tax return, how much should be their first deposit? PV18=58277.57; g=4%; r=10%; N=3; Pmt19=PV18*1+g=58277.57*1+4%=60608.67 The present value of year 18-21 at 18th year is: PV18-21=PV18+Pmt19r-g(1-(1+g1+r)N) =58277.57+60608.6710%-4%1-1+4%1+10%3 =214721.71 FV=214721.71; r=10%; g=2%; N=18-5=13 Pmt1=FV1+rN-1+gNr-g =214721.711+10%13-1+2%1310%-2% =7957...

Words: 1347 - Pages: 6

Premium Essay

Problem Set 1

...Problem Set #1 Date 09/22/2015 Sayantani Nandy 1. Sign into Bloomberg and check IBM's page (IBM US Equity). Check Company Overview and then Company Management. Find the composition of the Management Team and the Board and check the backgrounds of the Chair as well as the top 3 longest serving board members. (a) How many of these three board members appear to be independent? (b) What are their compensations? (c) What other board memberships or executive positions do they hold? (d) Do you think having these positions help increase or reduce agency cost and help better align the interest of shareholders with management? Answer: I will start to answer the question with a table of summary: IBM Corp Inc. Sr. No Tenure . (yrs.) 1 2 Independent Board Member CompenCurrent sation shareholding Kenneth Chenault 17.8 "Ken" Other Board/Executive Positions Company Name Title Yes / No Bloomberg Philanthropists Board Member Presidents & Fellows of Harvard Board Member College Proctor & Gamble Company Board Member No American Express Travel related Chairman services Co. American Express Co. Chairman $341,193 $ 1,031,972 BM Corp. Board Member Sidney 14.8 Taurel BioCrossroads IBM McGraw Hill Financial Mc Grawhill, Compensation and Leadership Development IBM, Executive compensation $368,724 $ 2,284,797 and management resources Name Board Member Board Member Board Member No Chairman Chairman Yes 3 Joan......

Words: 2087 - Pages: 9

Premium Essay

Problem Solution 1-8

...a. Acid-test ratio: (Cash + Accounts receivable) ÷ Total Current Liabilities = ($325+$3599) ÷ $3945 =0.99 Interpretation: The acid-test ratio assumes that all current liabilities are pay able immediately and that the debtor will convert the mast liquid assets to cash, the most liquid assets can cover current liabilities. b. Return on Assets: [Net income + Interest expense*(1-Tax rate)] ÷ Average total assets =[$1265+$78(1 - .40)] ÷ [($4,792 $8,058) ÷ 2] = 20.4% Interpretation: This ratio measures the return for each dollar invested in assets. Once you make the calculation of dividing EBIT by net operating assets, you come up with a percentage figure that can be used to see exactly how much the company earns for each dollar invested in it. c. Return on common equity: (Net income - Preferred dividends) ÷ Average common equity =($1,265 - $45) ÷{[($2,868 - $500)+($3,803 - $450)] ÷ 2} = 42.7% Interpretation: ROE measures the rate of return on the ownership interest f the common stock owners, return on each dollar invested by equity holders. d. Earnings per share: (Net income - Preferred dividends) ÷ Average common shares outstanding =($1265-$45) ÷ [(550+829) ÷2] =$1.77 Interpretation: Earnings per share measures the net income earned per each share owned. e. Gross profit margin ratio: Net sales – Cost of goods sold) ÷ Net sales ...

Words: 428 - Pages: 2

Premium Essay

Unit 1 Problem Set

...Networking Unit 1 Problem Set 1 Lesson 1 1. the general public in the United States will be able to purchase all of the Windows 7 editions in retail stores except... Starter, Home basic and Enterprise. 2. the core module that provides all of the Windows 7 capability that isn't language- or edition-specific is called... MinWin Module. 3. When you copy a file to a library, Windows Explorer writes the file to the folder designated as the … Save Location. 4. To use federated search, you must download or create XML files for specific sites called... Connectors. 5. The only operating system edition that you can upgrade in-place to Windows 7 Professional is... Windows 7 Ultimate. 6. Upgrading a computer running Windows 7 Starter to Windows 7 Ultimate using Windows Anytime Upgrade requires Blank megabytes of additional hard disk space. 0 7. to migrate a computer running Windows XP to Windows 7, you can use a utility called... Windows 7 Upgrade Advisor. 8. the new Windows 7 feature that renders all of the windows on the desktop transparent when you mouse over the right end of the taskbar is called... Aero Pack. 9. the Windows 7 Blank edition is only available in a 32-bit version. Starter 10. The maximum amount of system memory supported by Windows 7 Enterprise is... 192GB. Lesson 2 1. Windows Easy Transfer supports two types of migrations, called Blank and Blank. Wipe and Load & Side by Side 2. When a serious problem......

Words: 474 - Pages: 2

Premium Essay

Ipm Problem Set 5 Solutions

...BUS 431a: Investment and Portfolio Management SPRING 2013 Problem Set #5 (team work) 1. (15 points) Suppose the economy can be .in one of the following two states: (i) Boom or “good” state and (ii) Recession or “bad” state. Each state can occur with an equal opportunity (50%). The annual return on the market and a certain security X in the two states of the economy are as follows: • Market: at the end of the year, the market is expected to yield a return of 30% in the good state and a return of (-10%) in the bad state; • Security X: at the end of the year, the security is expected to yield a return of 40% in the good state and a return of (-35%) in the bad state; Furthermore, assume that annual risk-free rate of return is 5%. A. (5 points) Calculate the beta of security X relative to the market. B. (5 points) Calculate the alpha of security X. C. (5 points) Draw the security market line (SML). Please, label the axes and all points (including the market portfolio, the risk-free security, and security X) in the graph clearly. Identify alpha in the graph. Solution: 1. (5 points) Beta of security X is: Market portfolio: (1/2) probability of getting 30% and (1/2) probability of getting -10%. So, expected/mean return and the standard deviation of the market are: [pic] [pic] Security X: (1/2) probability of getting 40% and (1/2) probability of getting -35%. So, expected/mean return and the standard deviation of security X......

Words: 1422 - Pages: 6

Premium Essay

Problem Set 1

...Problem set 1 Exercise 1 Giving €10 to a friend does not affect GDP because it is just an exchange of paper and there is no new production. Because she loses the money, she cannot go to the movies, so she cannot consume anything. That transaction does not affect France's 2014 GDP. Expenditure: consumption in services increase by €50 (only the service fee and not the loan). Income side: wages and profits should increase by €50. Value added: services value added should increase by €50. Expenditure: consumption in goods increases, but imports also increases. GDP stays the same. Income side: it does not increase in France but in the US. Value added: it increases in the US and not in France Winning the lotery is just a money transfer, it does not involve production, therefore it does not affect GDP. It is legalized so it should count in GDP and increase it, but because it is domestic production, it is not meant to be sold, so it does not affect GDP. Expenditure: consumption in non-durable goods increases by €105. Income side: wages plus profits shoul increase by €105. Value added: Restaurants value added should increase by €105. Exercise 4 (i) NominalGDP2012 = QuantityTV * PriceTV2012 + QuantityComputers * PriceComputers2012 = 100*500+20*1,000 NominalGDP2012= €70,000 NominalGDP2013 = QuantityTV * PriceTV2013 + QuantityComputers * PriceComputers2013 = 80*400+30*1,200 NominalGDP2013= €68,000 NominalGDP2014 = QuantityTV *......

Words: 930 - Pages: 4

Free Essay

Economics 4220 Problem Set 1 Solution

...Economics 4220 Problem Set 1 Solution Click Link Below To Buy: http://hwaid.com/shop/economics-4220-problem-set-1-solution/ Instructions: This problem set consists of two parts. The first part is comprised of 10 multiple choice questions that will be worth 2 points each. The second part is comprised of four short answer questions. You are to answer all four of the questions. Each question will be worth up to five points. Part I: Multiple Choice – You are to answer all ten of the following multiple choice questions. Each question is worth two points. Question #1: Flu vaccines provide both private benefits to individuals and positive external benefits to other members of society. Without government intervention, we would expect: A) Question #2: Steve purchase pizza which costs $3 a slice and Diet Coke which costs $0.75 a can. At his current consumption level, the marginal rate of substitution between pizza and Diet Coke is 6. Given this information, we know that Steve is: a) Question #3: Many economists have documented a strong correlation between income and environmental quality across countries – as nations (individuals) become wealthier, they are willing to spend more to protect the environment. Based on this information, environmental quality is a: a) Normal good b) Inferior good c) A private good Use the following figure to answer Questions #4 and #5 Figure: Marginal Private Benefits and Marginal Social......

Words: 685 - Pages: 3

Premium Essay

Problem Set Solution 5

...Problem 2 - Problem 10-1: A project has an initial cost of $52,125, expected net cash inflows of $12,000 per year for 8 years, and a cost of capital of 12%. What is the project’s NPV? Answer: NPV = -$52,125 + $12,000[(1/i)-(1/(i*(1+i)n)] = -$52,125 + $12,000[(1/0.12)-(1/(0.12*(1+0.12)8)] = -$52,125 + $12,000(4.9676) = $7,486.20. Problem 3 - Problem 10-2: What is projects IRR? Answer: IRR = 16% Problem 4 - Problem 10-3: What is the projects MIRR? Answer: MIRR: PV Costs = $52,125. FV Inflows: PV FV 0 1 2 3 4 5 6 7 8 | | | | | | | | | 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 13,440 15,053 16,859 18,882 21,148 23,686 26,528 52,125 MIRR = 13.89% ...

Words: 1206 - Pages: 5

Premium Essay

Problem Set 1

...Problem Set 5: 1) Advantages include the fact that polyclonal is cheaper, a mixture of different antibodies are made while monoclonal is only one specific antibody (this might depend on the experiment as some might prefer different antibodies), and large quantities are made. Disadvantages are that the affinities of the antibodies differ, a good amount of a specific antibody can’t be made alone unlike monoclonal, it is less reliable, and the same sample can’t be guaranteed each time unlike the monoclonal which can bring similar clones months later. 3) The GFP-HDAC3 overlaps the DAPI where the nucleus is. This shows that HDAC3 is a nuclear protein. However, some deletions show that the nucleus has gone smaller while others show that the nucleus has gone larger. The goal of this experiment was to find out how the different portions of the protein affected localization in the cell. The experiment does show that there was a significant effect. 4) Sense: 5’ aagccccatcgcctggcattg 3’ Linker Loop: 5’ uucaagaga 3’ Antisense: 5’ caatgccaggcgatggggctt 3’ Poly U: UUUUU The goal of the knockout would be to see if the removed proteins had any effect on the function of the cell. The siRNA should be 30%-50% GC content, 21 bp in length, have a AA on the 5’ end, a linker, around 75 bp ds of the gene, and have a poly U tail. These conditions are satisfied but the GC content is slightly high. 5) Fold increase in HDAC3 mRNA gene in control vs experiment = 1488/151= 9.85 fold......

Words: 364 - Pages: 2

Premium Essay

Problem Set 1

...Problem Set 1 Problem 1 Which project should the firm select? Why? Project B: Managers should try to maximize their stock’s intrinsic value while also bringing in revenue. The P/E ratio shows the dollar amount investors will pay for $1 of current earnings. Problem 2 If most investors expect the same cash flows from Companies A and B but are more confident that A’s cash flows will be closer to their expected value, which company should have the higher stock price? Explain. The primary goal of a corporation should be to maximize its owner’s value. If a manager is to maximize shareholder wealth, he/she must know how that wealth is determined. Fundamentally, shareholder wealth is the number of shares outstanding at times the market price per share. A stock’s price at any given time depends on the cash flows a “marginal” investor expects to receive after buying the stock. With that being said, Company A’s cash flow would increase the stock price and the risk would be minimal. Management’s goal should be to make decisions designed to maximize the stock’s price. Problem 3 The president of Southern Semiconductor Corporation (SSC) made this statement in the company’s annual report: “SSC’s primary goal is to increase the value of our common stock holders’ equity.” Later in the report, the following announcements were made: a. The company contributed $1.5 million to the symphony orchestra in Birmingham, Alabama, its headquarters city b. The company is spending $500......

Words: 628 - Pages: 3