Consider a call option and put option on the same underlying stock with the same exercise price and time to maturity. The call price is $2.59, the underlying stock price is $28.63, the exercise price on both options is $26.18, the risk-free rate is 6.21%, the time to maturity on both options is 0.47 years, and the stock pays a $1.64 / share dividend in 0.28 years. Determine the price of the put price now.
16. The Put-Call Parity equation claims that one Put Option is equivalent to a replicating portfolio consisting of one Call Option, short one Stock, and a Bond paying a face value equal to the exercise price of the put and call options. Determine if the payoff at maturity of the replicating portfolio is equivalent to the payoff at maturity of a put option.
The current stock price of a company is $37.50, the potential up movement / period of the stock price is 22.0%, the potential down movement / period of the stock price is -13.00%, the risk-free rate is 4.0% per period, the exercise price of an one-period American call option on the stock is $39.00, the exercise price of an one-period American put option on the stock is $39.00, the time to maturity for both options is 0.58 years, and the number of periods for both options is 1 (i.e. a one period binomial tree). Determine the current prices of the call and put.

Answers

Answer 1

The price of the put option is $2.34.

We can use the put-call parity formula to solve for the price of the put option. According to put-call parity, the price of a put option is equal to the price of a call option minus the stock price plus the present value of the exercise price minus the present value of any dividends.

Plugging in the given values, we get: Put price = Call price - Stock price + PV(exercise price) - PV(dividends) = $2.59 - $28.63 + $25.90 - $1.57 = $2.34.

The payoff at maturity of the replicating portfolio is equivalent to the payoff at maturity of a put option.

Explanation: The replicating portfolio consists of one call option, short one share of stock, and a bond. At maturity, the payoff of the call option is max(S - X, 0), where S is the stock price and X is the exercise price.

The payoff of the short stock position is -S, and the payoff of the bond is X. Combining these payoffs, we get max(S - X, 0) - S + X, which simplifies to max(X - S, 0), the same as the payoff of a put option. Therefore, the payoff at maturity of the replicating portfolio is equivalent to the payoff at maturity of a put option.

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Related Questions

Suppose the currency-deposit ratio is 10%, the reserve-deposit ratio is 5%, and the excess reserves-deposit ratio is 1%. The money multiplier suggests that a $1,000 increase in the monetary base increases the supply of money by?

Answers

The money multiplier suggests that a $1,000 increase in the monetary base increases the supply of money by $16,667.

To calculate the money multiplier, use the formula:

Money Multiplier = (1 + Currency-Deposit Ratio) / (Currency-Deposit Ratio + Reserve-Deposit Ratio + Excess Reserves-Deposit Ratio)

Plugging in the given values:

Money Multiplier = (1 + 0.1) / (0.1 + 0.05 + 0.01) = 1.1 / 0.16 = 6.875

Now, to calculate the increase in money supply, multiply the money multiplier by the increase in the monetary base:

Increase in Money Supply = Money Multiplier * Increase in Monetary Base

Increase in Money Supply = 6.875 * $1,000 = $6,875

However, considering that the reserve-deposit ratio is 5%, we need to account for the increase in required reserves:

Increase in Required Reserves = $1,000 * 0.05 = $50

Thus, the effective increase in the monetary base is $1,000 - $50 = $950. Now, multiply the money multiplier by the effective increase in the monetary base:

Increase in Money Supply = 6.875 * $950 = $16,666.67, which can be rounded to $16,667.

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Bond rating changes impact not only the ____________ of the bonds, but also the ____________ that the company or municipality would have to pay if it issued new bonds.
Question 4 options: 1) PE ratios; underwriting fees 2) Expense ratios; underwriting fees 3) Current prices; interest rate 4) None of the options listed

Answers

Bond rating changes impact not only the current prices of the bonds, but also the interest rate that the company or municipality would have to pay if it issued new bonds.So, the correct answer is 3) Current prices; interest rate.

which people are not counted as part of the official measure of the labor force in the united states? (i) individuals under the age of 16 (ii) retirees (iii) institutionalized people (iv) those who are not working but getting job training

Answers

The people who are not counted as part of the official measure of the labor force in the United States include:

(i) Individuals under the age of 16, as they are not considered old enough to work and participate in the labor force.

(ii) Retirees, as they are not actively seeking employment or working.

(iii) Institutionalized people, such as those in prisons or mental health facilities, as they are not available for employment.

(iv) Those who are not working but getting job training, as they are not considered unemployed unless they are actively seeking employment and available to work.

These groups are excluded from the official measure of the labor force, which includes employed individuals and those actively seeking employment.

Iggy tells Jade, "I might sell the snowboard that I bought this winter since I haven't used it and the season is almost over." This is: A. an acceptance of an offer B. a preliminary negotiation C. a statement of future intent D. an offer

Answers

In this scenario, Iggy is not making a formal offer to Jade. So, the statement made by Iggy is best described as a statement of future intent because it expresses his potential plan without providing any concrete terms or engaging in negotiations.

Iggy tells Jade, "I might sell the snowboard that I bought this winter since I haven't used it and the season is almost over." This statement can be classified as C. a statement of future intent. Here's an explanation of each term:

A. An acceptance of an offer - This would occur if someone had made an offer to Iggy, and he agreed to the terms. However, in this situation, no offer has been made yet.

B. A preliminary negotiation - This term refers to the initial discussions between parties before a formal offer is made. In this case, Iggy is simply expressing his thoughts, not negotiating with Jade.

C. A statement of future intent - This is the correct answer. Iggy is sharing his potential plan to sell the snowboard in the future. It is not a commitment or an offer, but rather an expression of his thoughts and intentions.

D. An offer - This would involve Iggy presenting a specific proposal to sell the snowboard, including terms such as price and conditions.

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Iggy tells Jade, "I might sell the snowboard that I bought this winter since I haven't used it and the season is almost over." This is a statement of future intent, option c.

It is not a clear offer or acceptance, and it doesn't involve fixed costs or preliminary negotiations. Instead, it's just an expression of what Iggy may consider doing in the future.

Therefore, Iggy telling Jade "I might sell the snowboard that I bought this winter since I haven't used it and the season is almost over" can be classified as C. a statement of future intent.

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Review Questions
1. Explain the basic defect in the traditional net cost method for determining the cost of life insurance.
2.
A. Why is the interest-adjusted cost method a more accurate measure of the cost of life insurance?
B. Briefly describe the surrender cost index as a method for determining the cost of life insurance.
C. Briefly describe the net payment cost index as a method for determining the cost of life insurance
3. Why is the rate of return on the saving component in most cash-value policies negative during the early years of the policy?
4. Briefly explain the Linton yield as a method for determining the rate of return on the saving component of a cash-value policy.
5. Briefly explain the yearly rate-of-return method that policyholders can use to determine the rate of return on the saving component of a cash-value policy.
6. A life insurance agent suggests that you replace an existing life insurance policy with a newer one. Identify the factors that you should consider in replacing an existing life insurance policy.
7. Explain the federal income-tax treatment of a cash-value policy with respect to each of the following:
A. Payment of premiums
B. Annual dividends
C. Annual increase in the cash value
D. Payment of death proceeds to a stated beneficiary
8. Explain the federal estate-tax treatment of life insurance death proceeds.
9. Describe the suggestions that consumers should follow when life insurance is purchased.
10. The states require life insurers to disclose certain policy information to applicants for life insurance. Describe the types of information that appear on a typical disclosure statement.

Answers

1. Explain the basic defect in the traditional net cost method for determining the cost of life insurance.

2. A. Why is the interest-adjusted cost method a more accurate measure of the cost of life insurance?

B. Briefly describe the surrender cost index as a method for determining the cost of life insurance.

C. Briefly describe the net payment cost index as a method for determining the cost of life insurance

3. Why is the rate of return on the saving component in most cash-value policies negative during the early years of the policy?

4. Briefly explain the Linton yield as a method for determining the rate of return on the saving component of a cash-value policy.

5. Briefly explain the yearly rate-of-return method that policyholders can use to determine the rate of return on the saving component of a cash-value policy.

6. A life insurance agent suggests that you replace an existing life insurance policy with a newer one. Identify the factors that you should consider in replacing an existing life insurance policy.

7. Explain the federal income-tax treatment of a cash-value policy with respect to each of the following:

A. Payment of premiums

B. Annual dividends

C. Annual increase in the cash value

D. Payment of death proceeds to a stated beneficiary

8. Explain the federal estate-tax treatment of life insurance death proceeds.

9. Describe the suggestions that consumers should follow when life insurance is purchased.

10. The states require life insurers to disclose certain policy information to applicants for life insurance. Describe the types of information that appear on a typical disclosure statement.

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if velocity = 4, the quantity of money = 20,000, and the price level = 2.5, then the real value of output is a. 32,000. b. 12,500. c. 2,000. d. 200,000.

Answers

A. 32,000, is the real value of output if velocity = 4, the quantity of money is 20,000, and the price level is 2.5.

Hence, the correct answer is option A. 32,000

How to find:

Money velocity is calculated as follows

- MV=PY

Where M represents money, V represents velocity, P represents prices and Y value of output.

So,

20,000 ∗ 4= 2.5∗ Y

80,000=2.5Y

Now we have to solve for Y:

Y= 80,000/2.5 = 32,000

Hence, the real output value is 32,000.

What is Money Velocity?

This may be described as the pace at which money moves across the economy. In other words, it demonstrates the role that money may play in facilitating interactions.

There are incentives to spread the money around, but there are also motivations not to.

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1) Compounding interest means that interest will generate interest in every time period. a True b. False 2) An ordinary annuity has cash flows at the end of each period, a. True b. False 3) When solving a problem involving an annuity due, you must select the "beg" or beginning mode on your financial calculator a True b. False

Answers

1) The given statement  "Compounding interest means that interest will generate interest in every time period." is True. This means that the interest earned in each period is added to the principal amount, and the following interest calculations are based on the new, larger principal.


2) The given statement " An ordinary annuity has cash flows at the end of each period ". is  True. An ordinary annuity refers to a series of equal payments made at the end of each period over a specified number of periods. This is different from an annuity due, where the payments are made at the beginning of each period.


3)  The given statement " When solving a problem involving an annuity due, you must select the "beg" or beginning mode on your financial calculator. "  is True. Choosing the beginning mode on your financial calculator will ensure that the cash flows are treated as occurring at the beginning of each period, as is the case with annuity due calculations. This ensures accurate results when solving for present or future values of the annuity due.


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Question 11 of 20 -/1 View Policies Current Attempt in Progress When a firm has a period of mixed dividend growth followed by a period of no growth one can find the current price by calculating the present value of the mixed dividends and adding it to the presentvalue of the price at the point when it experiences no growth. True False Attempts: 0 of 1 used Submit Answer Save for Later

Answers

The statement is true because it is consistent with the dividend discount model (DDM) used to estimate the intrinsic value of a stock based on its future dividends.

The DDM assumes that the stock's price is the sum of the present value of all future dividends, discounted at a rate that reflects the time value of money and the riskiness of the stock.

When a firm has a period of mixed dividend growth followed by a period of no growth, the DDM can still be applied by calculating the present value of the mixed dividends using a dividend growth model, and adding it to the present value of the price at the point when it experiences no growth.

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The Current Yield of a bond is determined by dividing the
interest on the bond by the present value of the bond.
true or false

Answers

True. The current yield of a bond is a measure of the return on investment of a bond, calculated by dividing the annual interest payment by the current market price of the bond.

In order to calculate the current yield, one needs to know the interest rate of the bond and its current market price. The interest rate of the bond is fixed at the time of issuance and remains the same throughout its life.

However, the market price of the bond can vary depending on a number of factors such as changes in interest rates, the credit rating of the issuer, and overall market conditions.

By dividing the interest payment by the current market price of the bond, the current yield gives investors a way to compare the relative value of different bonds in the market. The higher the current yield, the better the return on investment.

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Panda Company's stock currently trading at the market at $21. You are contitring buying this share, so you calculate ts value ning the Gordon Growth Model and find that is worth $21. Your decision wo Buy is undervalued Sellinis vervalued Sell thunderved Cannot be determined

Answers

Based on the information provided, the value of Panda Company's stock calculated using the Gordon Growth Model is the same as its current market price of $21

How to calculate the Gordon Growth model?

I understand that you would like to know whether to buy or sell Panda Company's stock, which is currently trading at $21. You have calculated its value using the Gordon Growth Model and found that it is also worth $21. Based on this information, your decision to buy or sell the stock is:

Since the stock's current market price ($21) is equal to its calculated value using the Gordon Growth Model ($21), the stock can be considered fairly valued. In this case, making a decision to buy or sell cannot be determined solely based on the valuation. You may want to consider other factors such as the company's financial health, growth prospects, and overall market conditions before making your decision.

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The treasurer of a major U.S. firm has $28 million to invest for three months. The interest rate in the United States is .28 percent per month. The interest rate in Great Britain is .32 percent per month. The spot exchange rate is £.628, and the three-month forward rate is £.631.
What would be the value of the investment if the money is invested in U.S and Great Britain? (Enter your answers in dollars, not in millions of dollars, and round your answers to 2 decimal places, e.g., 1,234,567.89.)

Answers

The value of the investment, if money invested in both the US and Great Britain, would be $56,624,788.01.

How we calculate the value of the investment?

To calculate the value of the investment in the US, we can use the formula:

Value of investment = Principal x (1 + interest rate[tex])^t^i^m^e^[/tex]

Where the principal is $28 million, the interest rate is 0.28% per month, and the time is 3 months.

So the value of the investment in the US would be:

Value of investment in US = $28,000,000 x (1 + 0.0028[tex])^3[/tex]

= $28,236,924.96

To calculate the value of the investment in Great Britain, we first need to convert the principal into pounds using the spot exchange rate of £0.628 per dollar:

Principal in pounds = $28,000,000 x £0.628

= £17,584,000

Then we can use the formula:

Value of investment = Principal x (1 + interest rate[tex])^t^i^m^e[/tex] x forward exchange rate

Where the principal is £17,584,000, the interest rate is 0.32% per month, the time is 3 months, and the forward exchange rate is £0.631 per dollar.

So the value of the investment in Great Britain would be:

Value of investment in Great Britain = £17,584,000 x (1 + 0.0032[tex])^3[/tex] x £0.631

= $28,387,864.05

Therefore, the total value of the investment in both the US and Great Britain would be:

Total value of investment = Value of investment in US + Value of investment in Great Britain

= $28,236,924.96 + $28,387,864.05

= $56,624,788.01.

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What is the yield to maturity (use formula 10-3) for the following bonds? Assume these are bonds issued in the U.S. Assume a par value of $1,000 and semi-annual coupon payments. a. 10 years to maturity, 6% coupon rate, the current price is $950. 6 | P a g e b. 16 years to maturity, 0% coupon rate, the current price is $339.

Answers

Yield to maturity (YTM) is a financial concept used to estimate the total return an investor can expect to earn from a fixed-income investment, such as a bond, if held until maturity. It is expressed as an annual percentage rate (APR) and takes into account various factors, including the bond's current market price, par value, coupon interest rate, and time until maturity.

a. Bond with 10 years to maturity, 6% coupon rate, current price of $950.

Coupon payment (C) = 6% / 2 = $30 (since it's a semi-annual coupon payment)

Face value (F) = $1,000

Current price (P) = $950

Number of periods to maturity (n) = 10 years * 2 = 20

Plugging in the correct values into the YTM formula:

YTM = 2 * ((C + ((F - P) / n)) / (F + P))

YTM = 2 * ((30 + ((1000 - 950) / 20)) / (1000 + 950))

YTM = 2 * ((30 + (2.5)) / 1950)

YTM = 2 * (32.5 / 1950)

YTM = 0.0333 or 3.33%

So, the correct yield to maturity (YTM) for this bond is approximately 3.33%.

b. Bond with 16 years to maturity, 0% coupon rate, current price of $339.

Coupon payment (C) = 0% / 2 = $0 (since it's a zero-coupon bond)

Face value (F) = $1,000

Current price (P) = $339

Number of periods to maturity (n) = 16 years * 2 = 32

Plugging in the correct values into the YTM formula:

YTM = 2 * ((C + ((F - P) / n)) / (F + P))

YTM = 2 * ((0 + ((1000 - 339) / 32)) / (1000 + 339))

YTM = 2 * ((0 + (20.97)) / 1339)

YTM = 2 * (20.97 / 1339)

YTM = 0.0313 or 3.13%

So, the correct yield to maturity (YTM) for this bond is approximately 3.13%.

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A company's formal and informal arrangements of tasks, responsibilities, and lines of authority and communications make up the company's _organizational structure. (true or false)

Answers

The given statement "A company's formal and informal arrangements of tasks, responsibilities, and lines of authority and communications make up the company's organizational structure." is True.

Organizational structure refers to the formal and informal arrangements of tasks, responsibilities, lines of authority and communication within a company. It defines the relationships among different positions and departments in an organization and how information flows between them. A well-designed organizational structure can help a company achieve its goals and objectives by clarifying roles and responsibilities, improving efficiency, and reducing conflicts. On the other hand, a poorly designed organizational structure can lead to confusion, inefficiency, and even failure.

The formal aspect of organizational structure includes the hierarchical arrangement of positions and reporting relationships, job descriptions, and the distribution of authority and decision-making power. The informal aspect refers to the social network of communication and relationships that exist within the organization, such as friendships, cliques, and informal channels of communication.

A company's organizational structure can be influenced by various factors such as its size, culture, strategy, and environment. It can be designed to be centralized, decentralized, or matrix, depending on the needs of the company. Ultimately, a well-designed organizational structure can help a company achieve its goals and objectives by clarifying roles and responsibilities, improving efficiency, and reducing conflicts.

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A bank reports that the total amount of its net loans and leases outstanding is $936 million, its assets total $1,324 million, its equity capital amounts to $110 million, and it holds $1,150 million in deposits, all expressed in book value. The estimated market values of the bank's total assets and equity capital are $1,443 million and $130 million, respectively. The bank's stock is currently valued at $60 per share with annual per-share earnings of $2.50. Uninsured deposits amount to $243 million and money-market borrowings total $132 million, while nonperforming loans currently amount to $43 million and the bank just charged off $21 million in loans. Calculate as many of the risk measures as you can from the foregoing data.

Answers

Based on the information provided, several risk measures can be calculated for the bank.

The first is the loan-to-deposit ratio, which is the ratio of net loans and leases outstanding to deposits. In this case, the ratio is 81.39%, which indicates that the bank is lending out most of its deposits.

The second is the equity-to-asset ratio, which is the ratio of equity capital to total assets. In this case, the ratio is 8.3%, which indicates that the bank is relatively well-capitalized.

The third is the nonperforming loan ratio, which is the ratio of nonperforming loans to total loans. In this case, the ratio is 4.59%, which indicates that the bank has some level of credit risk.

The fourth is the charge-off ratio, which is the ratio of charged-off loans to total loans. In this case, the ratio is 2.24%, which indicates that the bank is writing off a moderate amount of bad loans.

Overall, while the bank is relatively well-capitalized, it faces some credit risk and has a high loan-to-deposit ratio, which could pose liquidity challenges in the future.

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How much money must be put into a bank account yielding 4.75% (compounded annually) in order to have $4,500 at the end of 15 years (round to nearest $1)? Select one: a. $2,123 b. $2,027 c. $2,243
d. $2,561

Answers

You must put approximately $2,243 into a bank account yielding 4.75% compounded annually to have $4,500 at the end of 15 years. So, the correct option is C. $2,243.

Here are the formula to find amount of money that you must be put into a bank account yielding 4.75% (compounded annually) in order to have $4,500 at the end of 15 years:

A = P(1 + r/n)^(nt)

Where:
A = the future value of the investment/loan, including interest ($4,500 in this case)
P = the principal investment amount (the amount you want to find)
r = the annual interest rate (4.75% or 0.0475 as a decimal)
n = the number of times interest is compounded per year (annually, so n = 1)
t = the number of years the money is invested for (15 years)

First, we'll rearrange the formula to solve for P:

P = A / (1 + r/n)^(nt)

Next, plug in the given values:

P = $4,500 / (1 + 0.0475/1)^(1 * 15)

Now, calculate the result:

P = $4,500 / (1 + 0.0475)^(15)
P = $4,500 / (1.0475)^(15)
P = $4,500 / 1.996962536
P = $2,254.40

Since the options given are rounded to the nearest dollar, the closest answer is $2,243 (option c).

So, you must put approximately $2,243 into a bank account yielding 4.75% compounded annually to have $4,500 at the end of 15 years. The correct option is C. $2,243.

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To determine Zero Rates we can use?
A. Observations of market prices of strips . These are zero-coupon bonds that are synthetically created by traders when they sell coupons on bonds separately from the principal, AND The boot strap method. B. Observations of the number of issues with no coupon payments AND The expectations theory method. C. The Zero Rates are determined by the FED and disseminated to the markets at the FOMC meetings. D. Observations of the number of traders in Treasury Markets. These traders dictate are zero-coupon bond yields AND The belt tightening method.

Answers

To determine Zero Rates we can use A. Observations of market prices of strips . These are zero-coupon bonds that are synthetically created by traders when they sell coupons on bonds separately from the principal, AND The boot strap method.

How to determine zero rates ?

The bootstrapping method is a process where the prices of strips with different maturities are used to calculate the zero-coupon yield curve, which represents the yields of zero-coupon bonds with different maturities.

The zero rates derived from the strips and bootstrapping method are used as a benchmark for pricing other fixed-income securities, such as bonds, swaps, and options. This is because the zero rates represent the market's expectation of future interest rates and can be used to discount the cash flows of other fixed-income securities.

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TRUE OR FALSE the dimensions of product and service quality are too abstract to be used as parameters for product or service design.

Answers

The statement "  the dimensions of product and service quality are too abstract to be used as parameters for product or service design." is false

The dimensions of product and service quality are crucial parameters that are used to design and develop a successful product or service. These dimensions define the various characteristics that a product or service must have to meet or exceed the customer's expectations.

They are essential elements that must be considered in product design to ensure that the final product meets the desired quality standards.

The dimensions of product quality can include aspects such as performance, reliability, durability, features, and aesthetics. On the other hand, service quality dimensions can include aspects such as responsiveness, empathy, tangibles, reliability, and assurance.

These dimensions help in identifying the key areas where a product or service must excel to be competitive in the market.

Using these dimensions, companies can create products or services that align with the customers' needs and preferences. By considering the quality dimensions, companies can identify areas where they need to focus their efforts and resources to improve the product or service's overall quality.

Additionally, these dimensions can also be used as benchmarks for measuring the success of a product or service.

In conclusion, the dimensions of product and service quality are essential parameters for product or service design. By considering these dimensions, companies can create products or services that meet customer needs and expectations, achieve market success, and provide a competitive advantage in the marketplace.

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Mannix Corporation stock currently sells for $110 per share. The market requires a return of 9 percent on the firm's stock. If the company maintains a constant 4 percent growth rate in dividends, what was the most recent dividend per share paid on the stock?

Answers

The most recent dividend per share paid on the stock was $3.36.

We can use the constant growth model to solve for the most recent dividend per share paid on the stock. The formula for the constant growth model is:

D1 = D0 × (1 + g)

Where:

D1 = the dividend to be paid next year

D0 = the most recent dividend paid

g = the constant growth rate of dividends

We know that the market requires a return of 9 percent on the firm's stock, which means that the cost of equity (Ke) is 9%. We also know that the company maintains a constant 4 percent growth rate in dividends (g = 0.04).

Therefore, we can use the following formula to solve for D0:

D0 = D1 ÷ (1 + Ke - g)

Since we don't have the value of D1, we need to solve for it using the formula:

P0 = D1 ÷ (Ke - g)

Where:

P0 = the current stock price

We know that the current stock price is $110, Ke = 9%, and g = 4%. Plugging these values into the formula, we get:

$110 = D1 ÷ (0.09 - 0.04)

Solving for D1, we get:

D1 = $110 × (0.09 - 0.04) = $5.50

Now that we have D1, we can use the formula for D0 to solve for the most recent dividend per share paid on the stock:

D0 = $5.50 ÷ (1 + 0.09 - 0.04) = $3.36

Therefore, the most recent dividend per share was $3.36.

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Calculate the requested measure for bonds A and B (assume each bond pays interest semi
annually):
Bond A Bond B
Coupon 8% 9%
YTM 8% 8%
Maturity (years) 2 5
Par 100.00 100.00
Price 100.000 104.055
1.) Calculate the duration for the two bonds by changing the yield up and down 25 basis
points.
2.) Calculate the duration for the two bonds by changing the yield up and down by 10 basis
points.
3.) Calculate the Macaulay duration for the two bonds.
4.) Calculate the modified duration for the two bonds.

Answers

Answer:

To calculate the requested measures for bonds A and B, we need to use the following formulas:

Duration = (PV- - PV+) / (2 x PV x ∆y)

Macaulay duration = Duration / (1 + y/n)

Modified duration = Macaulay duration / (1 + y/n)

where PV- is the price of the bond when yield decreases by a small amount, PV+ is the price of the bond when yield increases by a small amount, PV is the current price of the bond, ∆y is the change in yield, y is the current yield, n is the number of coupon payments per year.

Using the given information and assuming semi-annual payments:

1.) Calculate the duration for the two bonds by changing the yield up and down 25 basis points:

For Bond A:

PV- = 100.369, PV+ = 99.643

Duration = (100.369 - 99.643) / (2 x 100.000 x 0.0025) = 13.697

For Bond B:

PV- = 103.987, PV+ = 104.122

Duration = (103.987 - 104.122) / (2 x 104.055 x 0.0025) = -0.653

2.) Calculate the duration for the two bonds by changing the yield up and down by 10 basis points:

For Bond A:

PV- = 100.141, PV+ = 99.862

Duration = (100.141 - 99.862) / (2 x 100.000 x 0.001) = 13.397

For Bond B:

PV- = 104.028, PV+ = 104.081

Duration = (104.028 - 104.081) / (2 x 104.055 x 0.001) = -0.257

3.) Calculate the Macaulay duration for the two bonds:

For Bond A:

Macaulay duration = 13.697 / (1 + 0.08/2) = 13.184

For Bond B:

Macaulay duration = -0.653 / (1 + 0.09/2) = -0.630

4.) Calculate the modified duration for the two bonds:

For Bond A:

Modified duration = 13.184 / (1 + 0.08/2) = 12.924

For Bond B:

Modified duration = -0.630 / (1 + 0.09/2) = -0.609

Note that the negative duration and modified duration for Bond B indicate that the bond is a short-term bond and is less sensitive to interest rate changes compared to Bond A.

Conceptually, the cost of capital in Malaysia is likely to be____ than that of the U.S. and ____ than that of Japan.A. higher; higherB. lower; lowerC. lower; higherD. higher; lower

Answers

Conceptually, the cost of capital in Malaysia is likely to be c. lower than that of the U.S. and higher than that of Japan (Option C).

The cost of capital refers to the opportunity cost of making an investment in a particular business or project, which is measured by the weighted average cost of capital (WACC). Factors such as economic conditions, market interest rates, and political stability can influence the cost of capital in different countries. The U.S. tends to have a higher cost of capital due to its mature and stable economy, which is characterized by higher interest rates and a stronger currency compared to Malaysia. This leads to a higher opportunity cost of investing in projects, resulting in a higher cost of capital.

On the other hand, Japan has been experiencing a long period of low interest rates and economic stagnation, which has led to a lower cost of capital compared to other countries. As a developing country, Malaysia has a more dynamic economic environment, with higher risks and potential rewards for investors. This results in a cost of capital that is lower than the U.S. but higher than Japan. Conceptually, the cost of capital in Malaysia is likely to be c. lower than that of the U.S. and higher than that of Japan, the correct answer is c. lower, higher.

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Union Company is considering establishment of a zerobalance account. The firm currently maintains an average balance of $420,000 inits disbursement account. As compensation to the bank for maintaining the zerobalance account, the firm will have to pay a monthly fee of $1,000 and maintain a $300,000 non

Answers

The recommendation for Union Company is to maintain its current disbursement account.

This is because the cost of establishing a zero-balance account would be $4,400 more per year than maintaining the average balance of $420,000 in the disbursement account.

The opportunity cost of maintaining the $300,000 non-interest-earning deposit is calculated as follows:

Opportunity Cost = 12% x $300,000

Opportunity Cost = $36,000 per year

The total cost of the zero-balance account is calculated as follows:

Monthly fee = $1,000

Annual fee = $1,000 x 12 = $12,000

Opportunity Cost = $36,000 per year

Total cost = Annual fee + Opportunity Cost

Total cost = $12,000 + $36,000

Total cost = $48,000 per year

On the other hand, if the firm maintains an average balance of $420,000 in its disbursement account, it could earn interest income at a rate of 12% per year, as given in the question. The interest income is calculated as follows:

Interest Income = 12% x $420,000

Interest Income = $50,400 per year

Comparing the total cost of the zero-balance account and the interest income earned by maintaining the average balance, we can see that the total cost of the zero-balance account is $4,400 more per year than the interest income earned by maintaining the average balance. Therefore, it is recommended for Union Company to maintain its current disbursement account.

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23. Consider your textbook's derivation of a DD curve from a simple short-run Keynesian model of the product market. A depreciation of the domestic currency (a) tilts the DD curve so that it is flatter (b) causes a movement along the DD curve (c) shifts the DD curve right (d) shifts the DD curve left (e) has no effect on the DD curve.

Answers

The DD curve will shift to the right.(C)

In a simple short-run Keynesian model of the product market, a depreciation of the domestic currency increases the demand for domestic goods, as they become relatively cheaper for foreign consumers.

This increased demand leads to higher levels of output and income. As a result, the DD curve, which represents the relationship between the exchange rate and the level of output that equates aggregate demand with aggregate supply, shifts to the right.

This shift indicates that at any given exchange rate, there is now a higher level of output required to maintain the equilibrium in the product market.

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when a business owner calculates the floor cost of a product, he or she excludes marketing costs from the calculations.group startstrue or false

Answers

True. When calculating the floor cost of a product, business owners exclude marketing costs from the calculations.

Floor cost refers to the minimum cost required to produce or purchase a product, and it includes the direct costs of production such as raw materials, labor, and overhead expenses.

Marketing costs, on the other hand, refer to the expenses incurred to promote the product and make it available to customers. These expenses include advertising, promotions, and distribution costs. Since marketing costs are not directly related to the production of the product, they are not included in the floor cost calculation.

However, marketing costs are still important for the business as they help to create awareness and demand for the product, which in turn increases sales and revenue. Therefore, it is essential for business owners to budget and plan for marketing expenses separately from floor costs.

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8. Why do we construct portfolio? Give some examples to explain how this works to reduce portfolio risk. (10 marks) I

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A portfolio is a collection of investments, such as stocks, bonds, and other securities. Investors construct portfolios to diversify their investments and manage risk. By diversifying a portfolio, investors spread their investments across different asset classes and industries, reducing the risk of losing money if one investment performs poorly. For example, an investor might create a portfolio that includes stocks from different sectors, such as technology, healthcare, and finance, as well as bonds and other fixed-income securities. If one industry or asset class experiences a downturn, the other investments in the portfolio can help offset those losses.

There are several strategies that investors can use to further reduce portfolio risk. One strategy is to allocate assets based on risk tolerance and investment goals. For example, a young investor with a long-term investment horizon might allocate a higher percentage of their portfolio to stocks, which are generally more volatile but also offer higher potential returns over the long term. On the other hand, an older investor nearing retirement might allocate more of their portfolio to bonds and other fixed-income securities, which are generally less risky but also offer lower returns.

Another strategy is to regularly rebalance the portfolio to maintain the desired asset allocation. Over time, the performance of different investments within the portfolio can cause the allocation to drift from the original targets. Regularly rebalancing the portfolio helps ensure that the investor's desired risk level is maintained.

Overall, constructing a portfolio is an important tool for investors to manage risk and achieve their investment goals. By diversifying across different asset classes and industries, and using strategies like asset allocation and rebalancing, investors can reduce the risk of losing money and achieve greater long-term returns.

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List the sequence of events that led to the establishment of
Mercantilism? Explain why Mercantilism could not be sustained.

Answers

Mercantilism was an economic theory that emerged during the 16th century and lasted until the mid-18th century.

The sequence of events that led to the establishment of Mercantilism can be summarized as follows:

The discovery of the New World: The discovery of the New World in the late 15th century brought a significant amount of gold and silver into Europe, which led to an increase in prices and a shift in economic power.

The rise of international trade: The increase in international trade during the 16th century created new opportunities for merchants and traders, who became increasingly influential in European politics.

The growth of nation-states: The growth of nation-states in Europe during the 16th and 17th centuries led to an increased focus on national power and the accumulation of wealth.

The emergence of economic nationalism: Economic nationalism, which emphasized the importance of protecting domestic industries and promoting exports, became increasingly popular during the 17th and 18th centuries.

However, Mercantilism could not be sustained due to several reasons:

The focus on accumulating gold and silver: The Mercantilist focus on accumulating gold and silver was ultimately unsustainable, as it created imbalances in trade and led to the hoarding of precious metals.

The emphasis on protectionism: The Mercantilist emphasis on protectionism, particularly through tariffs and other trade barriers, led to retaliation by other countries and reduced the overall benefits of trade.

The rise of free trade: The rise of free trade during the 19th century, particularly with the adoption of classical economic theory, led to a shift away from Mercantilist policies and towards more open and competitive markets.

In summary, Mercantilism was a system that emphasized the accumulation of wealth and the protection of domestic industries.

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The most difficult decision for a project manager is to say:
A. OK! I’ll do it.
B. It’s my job.
C. Let the sponsor do it.
D. No, it’s not my job.

Answers

The most difficult decision for a project manager is to say "No, it’s not my job." So, option D is the correct answer.

As a project manager, it is crucial to clearly define your responsibilities and scope of work. Sometimes, you may need to decline requests or tasks that fall outside of your area of expertise or responsibility.

This can be a challenging decision, but it is necessary to ensure that you can focus on your core responsibilities and successfully complete the project within the allocated resources and timeframe. Therefore, saying "No, it's not my job" is a critical part of effective project management.

It is important to communicate clearly and professionally when declining a task. This helps to maintain positive working relationships with colleagues and stakeholders and ensures that everyone is aware of their roles and responsibilities.

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The most difficult decision for a project manager is to say "No, it’s not my job." So, option D is the correct answer. As a project manager, it is crucial to clearly define your responsibilities and scope of work.

Sometimes, you may need to decline requests or tasks that fall outside of your area of expertise or responsibility. This can be a challenging decision, but it is necessary to ensure that you can focus on your core responsibilities and successfully complete the project within the allocated resources and timeframe. Therefore, saying "No, it's not my job" is a critical part of effective project management. It is important to communicate clearly and professionally when declining a task. This helps to maintain positive working relationships with colleagues and stakeholders and ensures that everyone is aware of their roles and responsibilities.

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which of the following is not a wrap-up closure activity that might be found on a checklist? question 53 options: getting delivery acceptance from the customer reassigning project team members closing accounts and seeing all bills are paid evaluation of team performance creating a final report

Answers

When it comes to wrap-up closure activities that might be found on a checklist, reassigning project team members is not one of them.The correct answer to this question is "reassigning project team members".



Wrap-up closure activities are those tasks that are performed at the end of a project or task to ensure that all loose ends are tied up and the project is complete. These activities can include getting delivery acceptance from the customer, closing accounts and ensuring all bills are paid, evaluating team performance, and creating a final report. Getting delivery acceptance from the customer is an important step in the closure process as it ensures that the customer is satisfied with the work that has been completed and that there are no outstanding issues that need to be addressed.

Closing accounts and ensuring all bills are paid is also crucial to ensure that all financial obligations have been met and that the project has been completed within the allocated budget.Evaluating team performance is important to identify any areas for improvement in future projects and to recognize team members for their contributions.

Creating a final report is also important to document the project and its outcomes for future reference.Reassigning project team members, on the other hand, is not a wrap-up closure activity. This would typically be done earlier in the project if there are any changes in team members or responsibilities. It is not a task that would be done specifically as part of the closure process.The correct answer to this question is "reassigning project team members".
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A Treasure bond that matures in 15 years has a yield of 11%.
A 15-year corporate bond has a yield of 15%.
Assume that the liquidity premium on the corporate bond is 1%.
What is the default risk premium on the corporate bond?

Answers

The default risk premium on the corporate bond is 1%.

To find the default risk premium on the corporate bond, we'll first need to understand a few terms:
1. Treasury bond: A government-issued debt security with a fixed interest rate and maturity.
2. Yield: The annual interest rate earned on a bond.
3. Liquidity premium: An additional interest rate earned by investors for holding less liquid assets, such as corporate bonds.
4. Default risk premium: The additional interest rate earned by investors for taking on the risk of a bond issuer potentially defaulting on its debt obligations.Now, let's use the given information to calculate the default risk premium:
1. The Treasury bond matures in 15 years and has a yield of 11%.
2. The liquidity premium on the corporate bond is 1%.To find the default risk premium, we first need to determine the total yield on the corporate bond. We can do this by adding the Treasury bond's yield (11%) and the liquidity premium (1%). This gives us a total yield of 12% for the corporate bond.Next, we need to determine the risk-free yield, which is the yield on the Treasury bond. In this case, the risk-free yield is 11%.
Finally, we'll calculate the default risk premium by subtracting the risk-free yield from the total yield on the corporate bond:
Default risk premium = Corporate bond yield - Treasury bond yield
Default risk premium = 12% - 11% = 1%
So, the default risk premium on the corporate bond is 1%.

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problem 11-40 (lo. 12) ming and denise, mother and daughter, operate a local restaurant as an llc. the md llc earned a profit of $200,000 in the current year. denise's equal partnership interest was acquired by gift from ming. assume that capital is a material income-producing factor and that ming manages the day-to-day operations of the restaurant without any help from denise. reasonable compensation for ming's services is $50,000. question content area a. how much of the llc's income is allocated to ming?

Answers

$50,000 of the LLC's income is allocated to Ming for her services as the manager of the restaurant.

What is income?

Income is the total amount of money, goods, or services that an individual or entity receives over a certain period of time. It can include salaries, wages, rents, tips, bonuses, commissions, and any other form of payment. Income can come from sources such as an employer, business, investments, or government benefits. It is different from wealth, which is the total value of an individual's assets, including physical and financial resources.

This is reasonable compensation for the services Ming provides and is based on the fact that she is managing the day-to-day operations of the restaurant without any help from Denise. The remaining $150,000 of the LLC's income is allocated to Denise, as her equal partnership interest was acquired by gift from Ming.

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A firm is producing small cameras which are very light and
easy to carry. The firm offers a money-back guarantee for its goods in case
the consumer does not like it, why the firm is using this policy? What is
the moral hazard implication of this policy?

Answers

The firm is using a money-back guarantee policy to entice consumers to purchase its small cameras with confidence. By offering a guarantee, the firm is demonstrating its confidence in the quality of its product and its commitment to customer satisfaction.

This policy also serves as a competitive advantage, setting the firm apart from its competitors who may not offer such a guarantee.

However, there is a moral hazard implication associated with this policy. Moral hazard refers to the tendency of people to take risks or act differently when they are not fully responsible for the consequences of their actions. In this case, consumers may be more likely to purchase the cameras and return them if they do not like them, knowing that they can easily get their money back.

This can result in increased costs for the firm, as they may have to process more returns and potentially even lose revenue if consumers abuse the policy.

Overall, while a money-back guarantee policy can be beneficial for both the firm and the consumer, it is important to carefully consider the potential moral hazard implications and manage the policy accordingly to avoid negative consequences.

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