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Contracts

Dr Pepper Snapple group

One specialized type of security is called an equity futures. This is a contract that guarantees you a share of a particular company to be delivered to you not today, but sometime in the future, at a price that is determined by the market right now. This price is usually called the futures price of the stock (note - the term is

Bond futures cash&carry arbitrage

Suppose that the price of a bond futures contract that settles in four months is $101 and the price of the underlying bond is $98. The underlying bond has a coupon rate of 9%, par value of $100, and the next coupon payment is to be made in six months. The borrowing rate is 7.2%. If an investor implemented a cash and carry trade,

IRR rule

The Titanic Shipbuilding Company has a noncancelable contract to build a small cargo vessel. Construction involves a cash outlay of $250,000 at the end of each of the next 2 years. At the end of the third year the company will receive payment of $650,000. The company can speed up construction by working an extra shift. In this c

Foreign Transactions

1. Many countries today have exchange rates that float somewhat freely against other countries. How can a business manager be responsible for foreign transactions forecast exchange rates to better manage foreign exchange exposure? Be sure to cite your source and provide numeric examples. 2. Why do some regions promote unr

Monopoly and Competition.

When is an industry competitive and when is it monopolistic? Read the article below about Google and its "monopolistic" tendencies. http://online.wsj.com/article/SB124156244115989189.html 1) All of you have used Google. Do you think it's anticompetitive? Why or why not? 2) Do you feel you have a good substitute product

arbitrage profit

Please help with this question. A one year oil futures contract is selling for $74.5 . Spot oil prices are $68 and the one year risk free rate is 3.25%. The arbitrage profit implied by these prices is________?

basic microeconomic theory

Please answer the following three questions from the perspective of basic microeconomic theory as applied to the world of buying and selling goods and services. Keep in mind that business are both sellers of goods and services and buyers of goods and services such as labor services and goods and services supplied by other busin

The Equivalent Uniform Annual Cost per Machine

Levi Strauss has some of its jeans stone-washed under a contract with independent U.S. Garment Corp. Their operating cost per machine is $22,000 for year 1 and it increases by $1000 per year through year 5. The equivalent uniform annual cost per machine (years 1-5) at an interest rate of 8% per year is?

Hybrid and Derivative Securities

Please see the attachment. JLB Corporation is attempting to determing whether to lease or purchase research equipment. The firm is in the 40% tax bracket, and its after-tax cost of debt is currently 8%. The terms of the lease and of the purchase are as follows: Lease- Annual end-of-year lease payments of $25,200 are require

Profit Maximization

You have an exclusive contract with Major League Baseball to manufacture Dodgers baseball jerseys and sell them in two markets: Los Angeles and Brooklyn. You produce all the jerseys in a single factory located in Seattle. Your total cost function associated with producing the baseball jerseys is c(Q)=Q2+400 where q is the total

Noise and smell externalities

Suppose Smith owns and works in a bakery located next to an outdoor cafe owned by Jones. The patrons of the outdoor cafe like the smell that emanates from the bakery. When Smith leaves his windows open, the cafe faces the demand curve P=30-0.2Q, while when the windows are closed, demand is given by P=25-0.2Q. However, Smith

Lease or buy decisions

You have been asked to evaluate a lease-purchase investment on a piece of equipment with a three-year MACRS depreciable life (33%-45%-15%-7%). The cost of the equipment is $100,000 plus $15,000 for transportation and $10,000 for installation. Your bank will finance the investment for three years at prime plus 130 basis points.

Net Advantage to Lease (NAL)

Buster's Beverages is negotiating a lease on a new piece of equipment that would cost $100,000 if purchased. The equipment falls into the MACRS 3-year class, and it would be used for 3 years and then sold, because the firm plans to move to a new facility at that time. The estimated value of the equipment after 3 years is $30,000

Present Value & Annual Dividend

What is the present value of a contract that promises to make year end payments to you of $100 for the next 20 years if the interest rate is 5%? The level payments (PMT) are $100 and we know the interest rate and the duration of the contract. Suppose you are willing to pay $30 today for a share of stock which you will expec

Demand and Forecasting Necessities

Assuming that all other factor remain unchanged, determine how a firm's break even point is affected by each of the following a. The firm finds it necessary to reduce the price per unit because of increased foreign competition. b. The firm's direct labor costs are increased as the result of a new labor contract. c. The Occupa

Discrimination Legislation

Affirmative Action is one of the most contentious issues; its intent and the discriminatory result of applying it in practice has become a major issue in today's workforce. 2 pages The Web site is as follows: * http://www.latimes.com/news/opinion/la-oe-westfaulcon24-2009apr24,0,5548886.story * What is Affirmative

Interest Rate

What is the present value of a contract that promises to make year end payments to you of $100 for the next 20 years if the interest rate is 5%? The level payments (PMT) are $100 and we know the interest rate and the duration of the contract.

Graph

Week Five Assignment 2 Office building maintenance plans call for the stripping, waxing, and buffing of ceramic floor tiles. This work is contracted out to office maintenance firms, and both technology and labor requirements are very basic. Supply and demand conditions in this perfectly competitive service market in New Y

Conceptual and Computational Questions

1. Identify whether each of the following transactions involves spot exchange, contract, or vertical integration. a. Barnacle, Inc., has a legal obligation to purchase 2 tons of structural steel per week to manufacture conveyor frames. b. Exxon-Mobil uses the oil extracted from its wells to produce raw polypropylene, a type of

Airline Industry

Please assist me with a 400 to 450 word essay that will provide a brief history of the airline industry, plus an industry overview, and a SWOTT analysis of the airline industry. Please include references.

Forward Premium Problem

The Wall Street Journal reported the following spot and forward rates for the Swiss franc ($/SF) Spot $0.8202 30 day forward $0.8244 90 day forward $0.8295 180 day forward $0.8343 a) Was the Swiss franc selling at a discount or premium in the forward market? b) What was the 30-day forward premium (or discount)?

Hedging commodities and exchange rate

Please help me figure out the following hedging problems. Problem 1: Hedging Commodities Bubbling Crude Corporation, a large Texas oil producer, would like to hedge against adverse movement in the price of oil because this is the firm's primary source of revenue. What should the firm do? Provide at least two reasons why it

What position should the fund manager take to hedge exposure to the market over the next two months? Calculate the effect of your strategy on the fund manager's returns if the index in two months is 700, 800, 900, 1,000 and 1,100.

A fund manager has a portfolio worth $100 million with a beta of 1.20. The manager is concerned about the performance of the market over the next two months and plans to use three-month futures contracts on the S&P 500 to hedge the risk. The current index level is 850 and one futures contract is on 250 times the index (i.e., the

Determining Profitable Option Strategy: Example Problem

The current price of a stock is $94, and three-month European call options with a strike price of $95 currently sell for $4.70. An investor who feels that the price of the stock will increase is trying to decide between buying 100 shares and buying 2,000 call options (20 contracts). Both strategies involve an investment of $9,40

Futures and Options Problem

The price of gold is currently $700 per ounce. Forward contracts are available to buy or sell gold at $900 for delivery in one year. An arbitrageur can borrow money at 10% per annum. What should the arbitrageur do? Assume that the cost of storing gold is zero and that gold provides no income.

Buying a home vs renting

The real estate agent tells the Bergholts that if they don't care to purchase, they might consider renting. The rental option would cost $1,400/month plus utilities estimated at $220 and renter's insurance of $25/month. The Bergholts believe that neither of them is likely to be transferred to another location within the next fiv