Suppose the simple island economy of Macroland only produces three goods, coconuts, pineapples and lobsters. The price and output data for selected years is shown below. The CPI for 2018 is equal to

Select one:

a. 147

b. 105.7

c. 94.6

d. 874

e. none of the above

Suppose the simple island economy of Macroland only produces three goods, coconuts, pineapples and lobsters. The price and output data for selected years is shown below. The CPI for 2018 is equal to

Select one:

a. 147

b. 105.7

c. 94.6

d. 874

e. none of the above

The residual approach to allocate transaction prices to multiple performance obligations in a contract is appropriate when:

Multiple Choice

• None of the goods and services included in the contract are not sold on a stand-alone basis.

• None of the answer choices are correct.

• The stand-alone price of all of the goods or services is known.

• The stand-along price of one or more of the goods or services is highly variable or uncertain.

3. A patient of Dr. Jones presents his Medicare card after his appointment. The total charge for the services was $100; however, Medicare will pay only $60 for this service and the patient is to pay $20. Acceptance of the patient’s Medicare insurance creates a contract:

Multiple Choice

• for payment of $60 and a price concession of $40.

• for $20 and an $80 discount or price concession.

• for payment of $100, regardless of what Medicare will pay.

• for payment of $80 and a $20 discount or price concession.

Determine the profit table and draw the profit diagram for each of the following portfolios. For what range of values is the portfolio profitable and what is the maximum loss or profit? Assume that all options have a maturity of one year.

a. Long one European put option with strike price K=$90 which costs $6.

b. Long one European call option with strike price K=$100 which costs $4.

c. Long one share and short two European call options with strike price K=$100. The current price of the stock is $95 and the price of one call option is $4.

d. A strangle created from the options in (a) and (b). Superimpose the graph of the strangle on the graphs of the options.

e. When is the strangle in (d) profitable? What is the maximum loss or profit? Why and when would you use this strategy?

Suppose that people consume only three goods, as shown in this table:

Complete the following table by computing the percentage change in price for each of the three goods.

Using a method similar to that used to calculate the consumer price index, the percentage change in the overall price level is.

True or False: If you were to learn that a bottle of Gatorade increased in size from 2017 to 2018, that information would raise your estimation of the inflation rate.

True

False

True or False: If you were to learn that Gatorade introduced new flavors in 2018, that would imply that the inflation rate you estimated is understated.

True

False

Suppose that people consume only three goods, as shown in this table:

Complete the following table by computing the percentage change in price for each of the three goods.

Using a method similar to that used to calculate the consumer price index, the percentage change in the overall price level is.

True or False: If you were to learn that a bottle of Gatorade increased in size from 2017 to 2018, that information would raise your estimation of the inflation rate.

True

False

True or False: If you were to learn that Gatorade introduced new flavors in 2018, that would imply that the inflation rate you estimated is overstated.

True

False

The following order book exists for a particular stock. The last trade on the stock was at $60.36.

a.  If you place a market buy order for 100 shares, at what price will it be filled? (Round your answer to 2 decimal places.)

b. If you place a market sell order for 100 shares, at what price will it be filled? (Round your answer to 2 decimal places.)

c. Suppose you place a market order to buy 350 shares. At what price will it be filled? Choose the appropriate answer.

• 200 shares at $60.43 and 150 shares at $60.42

• 350 shares at $60.43

• 350 shares at $60.36

• 200 shares at $60.38 and 150 shares at $60.39

0. After a detailed analysis on the risks and returns of the stock market and Stock XYZ (current price=€50), you conclude that the price of XYZ is unlikely to change a lot during the course of the next 3 months. You decide to bet on this analysis and establish a short straddle position, by simultaneously writing 100 puts and 100 calls with maturity of 3 months and a strike price of €50. The premium you receive for writing each put/call is €2.50.

   •  What is the maximum profit of your position? What should the stock price be, in order to realize this maximum gain?

   •  Report the lower and higher bounds for XYZ’s price 3 months from now that provide you with a non-negative return on your position.

   •  Draw a profit diagram separately for your a) short position on puts, b) short position on calls, and c) total position

0. After a detailed analysis on the risks and returns of the stock market and Stock XYZ (current price=€50), you conclude that the price of XYZ is unlikely to change a lot during the course of the next 3 months. You decide to bet on this analysis and establish a short straddle position, by simultaneously writing 100 puts and 100 calls with maturity of 3 months and a strike price of €50. The premium you receive for writing each put/call is €2.50.

   •  What is the maximum profit of your position? What should the stock price be, in order to realize this maximum gain?

   •  Report the lower and higher bounds for XYZ’s price 3 months from now that provide you with a non-negative return on your position.

   •  Draw a profit diagram separately for your a) short position on puts, b) short position on calls, and c) total position

1. MBX is a new firm that will generate free cash flows of $100 billion in year 1 and growing at a rate of 5% a year thereafter. If the MBX’ cost of capital is 10% and it has neither debt nor cash then by issuing 100 million shares the price of MBX stock will be:

   	a.	$200 per share
   	b.	$10 per share
   	c.	$20 per share
   	d.	$100 per share

1. Sales Budget

   FlashKick Company manufactures and sells soccer balls for teams of children in elementary and high school. FlashKick’s best-selling lines are the practice ball line (durable soccer balls for training and practice) and the match ball line (high-performance soccer balls used in games). In the first four months of next year, FlashKick expects to sell the following:

   	Practice Balls				Match Balls
   	Units		Selling Price		Units		Selling Price
   January	50,000		$8.75		7,000		$16.00
   February	58,000		$8.75		7,500		$16.00
   March	80,000		$8.75		13,000		$16.00
   April	100,000		$8.75		18,000		$16.00

   Required:

   1. Construct a sales budget for FlashKick for the first three months of the coming year. Show total sales for each product line by month and in total for the first quarter. If required, round your answers to the nearest cent.

   FlashKick Company
   Sales Budget
   For the First Quarter of Next Year
   	January	February	March	Quarter
   Practice ball:
   Units
   Unit price	$	$	$	$
   Sales	$	$	$	$
   Match ball:
   Units
   Unit price	$	$	$	$
   Sales	$	$	$	$
   Total sales	$	$	$	$

   Feedback

   The Sales Budget is the projection approved by the budget committee that describes expected sales for each product in units and dollars. The sales budget must be constructed first, before other budgets can be constructed.

   2. What if FlashKick added a third line—tournament quality soccer balls that were expected to take 40 percent of the units sold of the match balls and would have a selling price of $45 each in January and February, and $48 each in March? Prepare a sales budget for FlashKick for the first three months of the coming year. Show total sales for each product line by month and in total for the first quarter. If required, round your answers to the nearest cent.

   FlashKick Company
   Sales Budget
   For the First Quarter
   	January	February	March	Quarter
   Practice ball:
   Units
   Unit price	$	$	$	$
   Sales	$	$	$	$
   Match ball:
   Units
   Unit price	$	$	$	$
   Sales	$	$	$	$
   Tournament ball:
   Units
   Unit price	$	$	$	$
   Sales	$	$	$	$
   Total sales	$	$	$	$