Task 3a: Problem Set Directions: Type your answer to each question where indicated. Use more space if needed. 1. On Monday morning, an investor takes a long position in pound futures contract that matures on Wednesday afternoon. The agreed-upon price is $1.78 for 62,500 pound sterling. At the close of trading on Monday,
How might a portfolio manager use financial futures to hedge risk in each of the following circumstances:
How might a portfolio manager use financial futures to hedge risk in each of the following circumstances: a. You own a large position in a relatively illiquid bond that you want to sell. b. You have a large gain on one of your long Treasuries and want to sell it, but you would like to defer the gain until the next accounting p
Rus = 5% ruk = 7% E0 = 2.0 dollars per pound F0 = $1.97/ £ (one-year delivery) where the interest rates are annual yields on U.S. or U.K. bills. Given this information: a. Where would you lend? Why? b. Where would you borrow? Why? c. How could you arbitrage?
One Chicago has just introduced a new single-stock futures contract on Brandex stock, a company that currently pays no dividends. Each contract calls for delivery of 1,000 shares of stock in one year. The T-bill rate is 6% per year. a. If Brandex stock now sells at $120 per share, what should the futures price be? b. If th
In 2003 the state of Arizona determined that there was a shortage in correctional officers. I need to determine how correctional officers' wages are calculated.
Business AB makes Keyboards for laptop computers for sales to computer manufacturers (OEMs). Account information shows the total cost of producing four potential quantities of keyboard: Quantities of keyboard 50,000 100,000 150,000 200,000 Materials $ 125,000 $ 250,000 $ 375,000 $ 500,000 Leasing of Machinery
Part 1 - How would international trade function if there were no foreign exchange markets? Part 2 - If only spot markets existed, how would international trade function? Part 3 - Who are the major participants in the foreign exchange market? Part 4 - What are the effects of an appreciating/depreciating exchange rate
A). Construct an Edgeworth box for the two countries. b). Identify the contract curve. c). Solve for the free-trade equilibrium relative price. d). How are the gains from trade allocated across the two countries? e). What explains the peculiar allocation of the gains from trade across these countries? f). What is the direct
16) You purchased the following futures contract today at the settlement price listed in the Wall Street Journal. Answer the questions below regarding the contract. Soybean Oil (CBT) 60,000 lbs.; cents per lb. Lifetime Open High Low Settle Change High Low Open Interest Oct. 15.28 15.33 15.25 15.29 -.02 20.35 15.
10) With regard to market efficiency, what is meant by the term "anomaly"? Give three examples of market anomalies and explain why each is considered to be an anomaly. 11) Suppose that all investors expect that interest rates for the 4 years will be as follows: Year Forward Interest Rate 0(today) 5% 1 7% 2 9% 3
Fully describe the method by which the Federal Reserve uses the banking system to create new money.
Among the roadside stores of a middle class suburb, there used to be two drugstores, approximately the same size. One was on the side of the main road where traffic was the busiest in the morning; the other was on the opposite side of the road. They were about 50 meters apart. After many years of competing, the two businesses were merged and the shop on the busy-morning side of the road was shut down. Why did the owners of these businesses decide to do this? Could this decision be explained by the concept of economies of scale?'
Among the roadside stores of a middle class suburb, there used to be two drugstores, approximately the same size. One was on the side of the main road where traffic was the busiest in the morning; the other was on the opposite side of the road. They were about 50 meters apart. After many years of competing, the two businesses we
Define arbitrage and the law of one price. What role do they play in a market-based system? What do we call the 'one price' of an asset?
Tradesports.com has introduced a number of political contracts for the 2008 U.S. election already (!). Below is the current information for a bet that Barack Obama will win the 2008 U.S. Presidential election. Part A: How do these prediction markets rely on the three general purpose technologies that underlie the growth
Senator Rick Santorum (R-PA) has suggested de-funding the National Weather Service, arguing that households receive weather information from media outlets and businesses can receive subscription (paid) weather forecasts from private weather forecasting firms. Consider the externality/public good aspects of weather forecasts and
Your boss in the U.S. home office wants to know your perspective on the following. How do international sanctions, tariffs, quotas, and trade restrictions affect international trade and costs of production? How do tariffs and sanctions on the import of auto engines into the U.S. affect production and costs at Acme? Do you
1. Suppose that in a market there are only two drug dealers, A and B, who sell a homogenous product. Each dealer has a constant marginal cost of 10. Consider the possibility that the two dealers will coordinate their activities in order to increase their profits. The cartel agreement would have each dealer restrict its output so
In 2003 the state of Arizona determined that there was a shortage in correctional officers. Research the labor market for any state to determine how correctional officers' wages are calculated. 1) Cite the state and the URL of the Web site used in your research. 2) Discuss what factors could influence the supply and dema
Moral Hazard Model. Only Question #1. See attached file for full problem description.
1) The worlds most actively traded commodity is crude oil. New York Mercantile Exchange (NYMEX) is the largest market for future oil contracts, both light sweet and brent. Contracts are traded in units of 1000 barrels. Currently, non-member initial margin is $4,725 per contract. The Maintenance requirement is $3,500. Suppose you
1. Draw a demand curve. What is the relationship of price to demand? Draw a supply curve. What is the relationship of price to supply? Illustrate equilibrium of supply and demand with a graph. What is equilibrium? Show a shift in demand on your graph. What causes a change in demand? What causes a shift in demand? Pro
Place an 'M' beside the items in the following list that describe a mortal hazard problem and an 'A' beside those that describe an adverse selection problem:
Place an 'M' beside the items in the following list that describe a mortal hazard problem and an 'A' beside those that describe an adverse selection problem: a. A person with a terminally illness buys several life insurance policies through the email. b. A person drives carelessly because he or she has automobile insurance.
Please see full description of the problem in the attached file.
You enter into a forward contract to buy a 10 year, zero-coupon bond that will be issued in one year. The face value of the bond is $1,000, and the 1 year and 11 year spot interest rates are 4% per annum and 9% per annum respectively. Both of these interest rates are expressed as effective annual yields (EAY's). a) What is
1. What are the two types of pricing environments for sales to external parties? 2. What is a transfer price? Why is determining a fair transfer price important to division managers? 3. Standard costs facilitate management planning. What are the other advantages of standard costs? 4. Distinguish between an ideal standar
Leases R Us, Inc (LRU) has been contracted by Robotics of Beverly Hills (RBH) to provide lease financing for a machine that would assist in automating a large part of their current assembly line. Annual lease payments will start at the beginning of each year. The purchase price of this machine is $250,000, and it will be lease
The sentiment for increased deregulation in the late 1970s and early 1980s has been felt most significantly in the price regulation of a coal b grain c transportation d automobiles e electric power generation
Multiple choice questions in Finance: Break-even, future value, time value of money, present value, bond, payback period, capital project, NPV, IRR, international operations, currency fluctuations, goal of corporate management, current yield on the bond
1. Break-even is the point where: a. revenue equals total manufacturing costs b. revenue equals cost of goods sold c. revenue equals total variable costs d. revenue equals total variable costs plus total fixed costs e. none of the above 2. Future value can also be described as ____________ while present value can al
BE2-19 Porter Company signed a lease for an office building for a period of 10 years. Under the lease agreement, a security deposit of $10,000 is made. The deposit will be returned at the expiration of the lease with interest compounded at 5% per year. What amount will Porter receive at the time the lease expires? BE2-20 G
Show graphically why someone paid an annual salary might be likely to shirk if monitoring is incomplete at the firm.