Amanda works in the currency trading unit of Sumara Workers Bank in Togliatti, Russia. Her latest speculative position is to profit from her expectation that the U.S. dollar will rise significantly against the Japanese yen. The current spot rate is ¥120.00/USD$. She must choose between the 90-day options on the Japanese yen. The premium is 2.75 yen per USD. a. Should Amanda buy a put on yen or a call on yen? b. What is Amanda's break-even price on her option of choice in part a)? c. What is Amanda's gross profit and net profit if the end spot rate is 140 yen/$?

Case Study:

A franchisor in the hair cutting industry wanted to improve the selection process of prospective franchisees, area directors and store managers. They wanted to discern sooner in the interview process which applicants were ideal for their prospective positions. Franchisees were suffering an average annual employee turnover of approximately 200%. Many existing franchisees did not have the right personality for their positions.

They first benchmarked the behavioral requirements of three positions: area director, franchisee and store manager. As a part of this process they also surveyed the personalities of all of their existing area directors and franchisees. The points were used as part of the benchmarking process and were later utilized for the purposes of training and leadership development. These franchisees were trained using the Accord 5 Tier Performance Pyramid and its cognitive approach. Through this approach, their “B players” were able to become “A players,” their “C players” became “B players” and many of their “D players” were able to develop greater levels of success as well. They are now in the process of utilizing similar technologies to select stylists.

They found that area directors with the right personality were able to perform at higher levels and grow their territories at a faster pace. The right area director was able to effectively manage a larger organization, have a greater impact on their franchisees and generated greater revenues because of the impact they displayed. 

They found that franchisees with the right personality are able to reach profitability 33% quicker than those without the right personality. They were also able to grow and maintain their operations. They had significantly lower employee turnover, were more proactive and in general were lower maintenance franchisees. 

They found that by “Getting the People Side of their Business Right” they were able to meet their tactical short term goals while maintaining their strategic vision.

Cost of two-year implementation was approximately $45,000. The franchisor was able to add seven area directors, grow their organization from 350 to 500 locations and set the stage for more profitable growth.

Questions              

Help hair salon make a decision by outlining the Five (5) advantages and Five (5) disadvantages of a staff positioning.   

Assuming that hair salon has adequate capital, would you recommend that he invest in the franchise or open his own shop and why?          

Entrepreneurial research hair salon needed to find out his training and leadership development? Explain Five (5) market research steps.

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5.2%. The probability distributions of the risky funds are:   

The correlation between the fund returns is .0222.

Suppose now that your portfolio must yield an expected return of 12% and be efficient, that is, on the best feasible CAL.

a. What is the standard deviation of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b-1. What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 4.0%. The probability distributions of the risky funds are:

The correlation between the fund returns is 0.1250.

What is the Sharpe ratio of the best feasible CAL? (Do not round intermediate calculations. Round your answer to 4 decimal places.)

5. The current spot exchange rate is £0.95/$ and the three-month forward rate is £0.91/$. Based on your analysis of the exchange rate, you are pretty confident that the spot exchange rate will be £0.93/$ in three months. Assume that you would like to buy or sell £2,000,000. a. What actions do you need to take to speculate in the forward market? What is the expected dollar profit from speculation? b. What would be your speculative profit in dollar terms if the spot exchange rate actually turns out to be £0.88/$.

1. Assume the spot rate of the euro is $1.16, and over the next year the Eurozone inflation rate is 2% while the US inflation rate is 3%. According to purchasing power parity (PPP), what will the spot exchange rate be after one year? Assume the spot rate of the euro is $1.16 and the one-year interest rate for the Eurozone and the US are both initially 4.5%. Then assume that the US interest rate decreases to 4% while the Eurozone interest rate remains at 4.5%. According to the international Fisher effect (IFE),
2. 1. What will the spot exchange rate be after one year?
3. 2. What is the underlying factor that would cause such a change in the interest rate differential?

how and why stock market volatility occurs?

Project L costs $30,000, its expected cash inflows are $8,000 per year for 8 years, and its WACC is 10%. What is the project's discounted payback? Do not round intermediate calculations. Round your answer to two decimal places.

Project L costs $64,749.69, its expected cash inflows are $13,000 per year for 10 years, and its WACC is 14%. What is the project's IRR? Round your answer to two decimal places.

Ben Bader is considering selling an apartment building that he bought several years ago for $820,000, including transaction costs. He has claimed total (cumulative) depreciation (cost recovery allowances) of $255,000. He has made no capital improvements during his holding period.

Bader has been offered $900,000 for this property ($600,000 over the existing $600,000 mortgage note, to which the property will remain subject when sold). Terms of the offer are $90,000 in cash at the closing. Buyer assumes the $600,000 balance on the existing first mortgage note and signs a note and purchase-money mortgage for the remaining $210,000 of the purchase price. The $210,000 note provides for three equal annual payments including principle and interest, with interest at 12%

If Bader accepts this offer and incurs $50,000 of sales costs, what will be the resultant increase in his taxable income in the year of the transaction and in each of the three succeeding years, assuming he uses the installment method of reporting the sale? Bader has no imputed interest problem, and the property generate zero taxable income each year if it is not sold. Bader has no other outstanding debts.

Bonds are a liability (debt) for a company, stock is equity and therefore, a form of capital. Using the information and terminology in this module and research you complete on your own, determine the pros and cons for a company for issuing bonds and stocks. Assess the following components:

• Advantages
• Disadvantages
• Potential for Earnings
• Risk
• Access to funds
• Tax implications

4. $10,000 is deposited in a savings account earning 1.75% simple interest.

What is the future value (nearest penny) of the $10,000 after 5 years?

What is the future value after 5 years if the same account earns 1.75% interest compounded annually?  

5. You borrow $2000 on March 20 at 15% simple interest.  

a. How much interest (to the nearest penny) accrues by September 20 (180 days later). Assume ordinary interest.  

b. What is the total amount that you must repay?

6. A car has an advertised price of $22,000 cash or $650 per month for 4 years. If you pay the $650 per month for 4 years, what is the total amount you would be paying for the car?

7. If I = Prt and I = $398.90, r = 9.85% and t = 1 year, how much is P (to the nearest dollar)?  

8. If a loan is held for 180 days, then t is about: A. 180   B. 1/2   C. 1/4   D. 3  

Please show work. Thank you.