Draw a cash flow diagram for a cash flow that starts at $1,000 at the end of the first month and increases by $100 each month after that in perpetuity with an interest rate of 21% annual compounded monthly (Draw at least the first 5 months). What is the present value of this cash flow?

1.

a. You are creating an index for the four following stocks:

What is the one day return for the index if it is price-weighted? Present your answer as the percent change from t=0 to t=1 to the nearest two decimals in this format, 1.23%

b.

What is the one day return for the index if it is market capitalization-weighted? Present your answer as the percent change from t=0 to t=1 to the nearest two decimals in this format, 1.23%

c.

Suppose that at the conclusion on t=1 trading day, stock ABC does a 2:1 stock split, what is the new divisor for your price-weighted index? Present your answer rounded to the nearest two digits like this, 1.23

Elasticity

Watch the episode of The Simpsons "Bart Gets an Elephant". In the episode, the Simpsons find that their pet elephant, Stampy, is eating them out of house and home. So, Bart devises a plan to charge admission for people to see the elephant.

What happened at $1 price? Why did he raise the price to $100? What happened at $100 price? Did he accomplish his goal? Use your knowledge of elasticity to explain what, why, and how this plan happened.

Here is a link to the episode: http://pixa.club/en/the-simpsons/season-5/epizod-17-bart-gets-an-elephant

What is the total amount of healthcare expenditures in the US? Provide a specific amount in dollars and percentage with respect to GDP.

During the first part of the semester we have spent a great deal of time reviewing general concepts of economics to build the foundation to understand specific issues of the healthcare sector. What general economic assumptions do not apply to healthcare? Explain why.

Define the concept of adverse selection and explain why it is important in healthcare insurance markets.

Briefly explain what is moral hazard and describe an example in healthcare.

Calculate the elasticity of demand using the data shown in the table below. Explain what methods you used to arrive at your answers.

The Karl Challenge: Consider the following hypothetical three-stage screening test for a cancer with the following rates of detection and costs:

Calculate the average cost per cancer detected in the three stages.

Calculate the marginal cost per cancer detected in the three stages

Suppose that the marginal benefit per treated case is $12,000 per person. What would be the optimal screening, given the costs?

Consider the graph below and explain the meaning of it.

The Isabel Challenge: Suppose that Nathan’s employer provides a health insurance policy that pays 80 percent of $1 over the first $100 spent. If Nathan incurs $1,000 in expenses, how much will he pay out of pocket? What percentage of his expenses will this be?

Explain the meaning and interpretation of the following two graphs:

The Danny Challenge: Suppose that a consumer makes V₀ physician visits each year at a price of P₀. If the price elasticity is -0.4, what will happen to the number of visits if the price increases by 10 percent? What will happen to total physician expenditures? Explain your answers.

Between January 14, 2015, and July 14, 2015, the average price of regular gasoline increased from $ 1.99 per gallon to $ 2.60 per gallon.

A) Calculate the percentage increase in price

B) If the price of gasoline decreases by 30% from its July 14, 2015, level of $ 2.60 per gallon, what would be the new price?

C) Can a variable increase more than 100%? Yes or no? Give an example.

D) Can a variable decrease more than 100%. Yes or no? Give an example.

E) If the stock market increases 30% in January and 25% in February. Has the stock market increased 55% from January 1st to February 28th? Yes or no? Explain why

5.

A bicycle is assembled out of bicycle frame and two wheels.

A) Write down a production function of a firm that produces bicycles out of frames and wheels. The firm requires no assembly, so labour is not an input in this case. Sketch the isoquant that shows all combinations of frames and wheels that result in producing 100 bicycles.

B) Suppose that initially the price of a frame is 400 dollars and price of a wheel is 50 dollars. On the graph you drew for part (a), show the choices of frames and wheels that minimize the cost of producing 100 bicycles, and draw the isocost line through the optimal basket.

C) Repeat the part if the price of a frame rises to 500 dollars, while the price of a wheel remains 50 dollars.

Company A enters into a contract with Company B on March 1, and end on Nov. 31. Company A will exchange 100 clothes at discount as well as 100 glasses. The regular wholesale price of clothes is $85, and cost to produce the glasses is $10. All goods company A sells has profit margin of 60%. Company B agrees to pay $9000 in marketing over the life of contract. company A recognizes $9000 when contract is signed. Fifty Clothes and glass will be delievered at March 1, 25 on June 1, 25 in August 1.

1) Calculate transaction price of contract?

2)Wholesale price of glasses and discount Company B got on clothes?

3) Allocation of transaction price?

Company A enters into a contract with Company B on March 1, and end on Nov. 31.

Company A will exchange 100 clothes at discount as well as 100 glasses.

The regular wholesale price of clothes is $85, and cost to produce the glasses is $10.

All goods company A sells has profit margin of 60%.

Company B agrees to pay $9000 in marketing over the life of contract.

company A recognizes $9000 when contract is signed.

Fifty Clothes and glass will be delievered at March 1, 25 on June 1, 25 in August 1.

1) Calculate transaction price of contract?

2)Wholesale price of glasses and discount Company B got on clothes?

3) Allocation of transaction price?

If the price elasticity of demand for tickets to a dance performance

of the Alvin Ailey American Dance Theatre is -1.2 for any quantity

of tickets sold, what would happen to the number of tickets sold if

the price were lowered from $100 to $90, if the quantity demanded at

$100 is 500 tickets? (HINT: Round your answer to the nearest whole

number.) Compute the total revenues for each of the two prices.

What is the (approximate) marginal revenue of the additional tickets

sold at the lower price? If Alvin Ailey is deciding between the two

ticket prices based on expected profits, which should they choose?

Repeat this exercise for a price elasticity of demand of -0.25. Does

the decision of Alvin Ailey change? Explain.

Binomial model Over the coming year Ragwort’s stock price will halve to $50 from its current level of $100 or it will rise to $200. The one-year interest rate is 10%.

a. What is the delta of a one-year call option on Ragwort stock with an exercise price of $100?

b. Use the replicating-portfolio method to value this call.

c. In a risk-neutral world what is the probability that Ragwort stock will rise in price?

d. Use the risk-neutral method to check your valuation of the Ragwort option.

e. If someone told you that in reality there is a 60% chance that Ragwort’s stock price will rise to $200, would you change your view about the value of the option? Explain.