Questions
Suppose you buy one SPX call option with a strike of 2135 and write one SPX...

Suppose you buy one SPX call option with a strike of 2135 and write one SPX call option with a strike of 2195. What are the payoffs at maturity to this position for S&P 500 Index levels of 2050, 2100, 2150, 2200, and 2250? (A negative value should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required.)

Index level          Long call payoff Short call payoff              Total payoff

2050                                      

2100                                      

2150                                      

2200                                      

2250                                      

2.

Strike Calls Puts
Close Price Expiration Vol. Last Vol. Last
Hendreeks
103 100 Feb 72 5.20 50 2.40
103 100 Mar 41 8.40 29 4.90
103 100 Apr 16 10.68 10 6.60
103 100 Jul 8 14.30 2 10.10

Suppose you buy 25 February 100 call option contracts. Hendreeks stock is selling for $105.50 per share on the expiration date. How much is your options investment worth? What if the stock price is $101.40 on the expiration date? (Do not round intermediate calculations.)

In: Finance

Does the previous problem show the expected relationship between the interest rate and the price? Explain.

(a) If a coupon bond has a face value of $5000, a yearly coupon payment of $100, and a two year maturity, what is the current price, given i=3%?

(b) What if i=4%?

Does the previous problem show the expected relationship between the interest rate and the price? Explain.

In: Finance

1. Suppose you’re given with the following information for some assets; a 10-year 8%-coupon bond of...

1. Suppose you’re given with the following information for some assets; a 10-year 8%-coupon bond of semi-annual coupon payment with face value as $1,000, a common stock of $1.2 current dividend with 5% growth rate for the first 2 years and possibly smoothed out toward 3% from the beginning of 3rd year and on. Both bond and common stock are issued by Company BD. Answer the following questions.

  1. Suppose the yield to maturity (that is, the discount rate) for the bond is 10%, what is the present value of this coupon bond? Is it a discount bond? Why? What if the discount rate is 6%?
  2. Suppose the bond is in fact, callable. That is, the firm may repurchase it with the call price. Let the bond’s call price be $985 and the bond is callable at the end of year 2, what is the yield to call for this bond if the current bond price is $865? (That is, the discount rate for the bond if you choose to be called. Use IRR function in EXCEL for this question).
  3. Suppose the stock price is $5.25 per share right now, what is the required rate of return for the stock? What are the assumptions you have for this present value model?
  4. Suppose your holding period for the common stock is 5 years, what is the present value of expected resell price of this common stock?
  5. Suppose the bond is convertible. That is, at the end of the 4th year after issuance, the holder of the bond has the right to convert the bond with 1 to 100 ratio toward company BD’s common stock. Let the date of your purchase of the bond is the second year after issuance, would you possibly convert the bond if based on the above information in a) and c)?

In: Accounting

11.Which of the following is true? (a) In Bertrand oligopoly each firm believes that their rivals...

11.Which of the following is true?

(a) In Bertrand oligopoly each firm believes that their rivals will hold their output

constant if it changes its output.

(a) In Cournot oligopoly firms produce an identical product at a constant marginal cost and engage in price competition.

(b) In oligopoly a change in marginal cost never has an effect on output or price.

(c) (a) and (b) are true

(d) None of the statements associated with this question are true.

12. In a Sweezy Oligopoly, a decrease in a firm's marginal cost generally leads to: (a) reduced output and a higher price. (b) increased output and a lower price. (c) higher output and a higher price.

(d) (a) and (b) are true. (e) none of the statements associated with this question are true.

13. Bertrand model of oligopoly reveals that (a) capacity constraints are not important in determining market performance. (b) perfectly competitive prices can arise in markets with only a few firms. (c) changes in marginal cost do not affect prices. (d) all of the statements associated with this question are true.

(e) none of the statements associated with this question are true.

14. Two identical firms compete as a Cournot duopoly. The demand they face is P = 100 - 2Q. The cost function for each firm is C(Q) = 4Q. In equilibrium, the deadweight loss is: (a) $128, (b)$256, (c) $384, (d) $512, (e) none of them are true..

15. Two identical firms compete as a Cournot duopoly. The demand they face is P = 100 - 2Q. The cost function for each firm is C(Q) = 4Q. The equilibrium output of each firm is: (a) 8, (b) 16, (c) 32, (d) 36, (e) none of them are true.

16. Two identical firms compete as a Cournot duopoly. The demand they face is P = 100 - 2Q. The cost function for each firm is C(Q) = 4Q. Each firm earns equilibrium profits of: (a) $1,024, (b) $2,048, (c)$4,096, (d) $512 (e) none of them are true

17. Two identical firms compete as a Cournot duopoly. The demand they face is P = 100 - 2Q. The cost function for each firm is C(Q) = 4Q. In equilibrium, the deadweight loss is: (a)$128, (b)$256, (c)$384, (d)$512, (e) none of them are true.

18. Two firms compete as a Stackelberg duopoly. The demand they face is P = 100 - 3Q. The cost function for each firm is C(Q) = 4Q. The outputs of the two firms are:

(a).QL = 16; QF = 8.

(b).QL = 24; QF = 12.

(c).QL = 12; QF = 8.

(d).QL = 20; QF = 15.

(e). None of them are true.

19. Two firms compete as a Stackelberg duopoly. The demand they face is P = 100 - 3Q. The cost function for each firm is C(Q) = 4Q. The profits of the two firms are:

20. Suppose a manager is interested in implementing third-degree price discrimination. The manager knows that the price elasticity of demand for Group 1 is -2 and the price elasticity of demand for Group 2 is -1.2. Based on this information alone we can conclude that the price charged to Group 2 will be

(a) the same as the price charged to Group 1.

(b) lower than the price charged to Group 1.

(c) higher than the price charged to Group 1.

(d) there is insufficient information to determine whether Group 2 will have a higher,

lower or the same price as Group 1.

(e) none of them are true.

In: Economics

In 2018, Elaine paid $2,760 of tuition and $1,060 for books for her dependent son to...

In 2018, Elaine paid $2,760 of tuition and $1,060 for books for her dependent son to attend State University this past fall as a freshman. Elaine files a joint return with her husband. What is the maximum American opportunity credit that Elaine can claim for the tuition payment and books in each of the following alternative situations? What is the American Opportunity Credit if: a. Elaine’s AGI is $92,750. b. Elaine’s AGI is $164,500. c. Elaine’s AGI is $211,000.

In: Accounting

If a phenotypically normal woman whose father suffered from hemophilia marries a normal man, what is...

If a phenotypically normal woman whose father suffered from hemophilia marries a normal man, what is the probability of hemophilia occurring in the children produced by this marriage? (Show the cross and give the genetic ratios by sex.) In the next case, assume that the same woman had a husband with a genotypically homozygous normal mother but whose father also had hemophilia. What will then be the chance of hemophilia in the children? Give genotypic and phenotypic ratios for the children by sex. This is an X-linked cross.

In: Biology

Using property she inherited, Myrna makes a gift of $16.2 million to her adult daughter, Doris. Neither Myrna nor her husband,

Using property she inherited, Myrna makes a gift of $16.2 million to her adult daughter, Doris. Neither Myrna nor her husband, Greg, has made any prior taxable gifts. Assuming that a flat 40% tax rate applies, determine the Federal gift tax liability if: 

a. The election to split gifts is not made. 

b. The election to split gifts is made. 

c. What are the tax savings from making the election?

 

 

In: Accounting

Negative connotations are likely when you combine “discrimination” with most words (e.g., “racial discrimination”). But, is...

Negative connotations are likely when you combine “discrimination” with most words (e.g., “racial discrimination”). But, is price discrimination bad? The hurdle method of price discrimination is one method price-discriminating firms use to separate those who are willing to pay a high price from those who are more price conscious. The hurdle method is the practice by which a seller offers a discount to all buyers who overcome some obstacle. Consider a rebate offer as a hurdle. For example, imagine a good with a price of $100, but if consumers mail the completed rebate form, a portion of the packaging, and the sales receipt, the seller will refund $20. In essence, buyers who use the rebate pay a lower price if they are willing to “jump the hurdle” that the rebate provides. The rebate allows the seller to offer a discounted price ($80) to buyers who are not willing to buy a product at the higher price. In doing this, sellers attempt to divide buyers by their reservation price, which is the highest price a particular buyer is willing to pay for a good. Buyers with higher reservation prices (those willing to pay a higher price) are less likely to jump the hurdle, so they pay the higher price ($100). In our example, the seller is dividing consumers into two segments: (i) those whose reservation price is above $100 (who will pay the full price) and (ii) those whose reservation price is between $80 and $99 (who will pay the lower price of $80). Other types of hurdles might require buyers to wait for a longer time period or accept the same good but of a different quality to buy at the lower price.

Of course, this is not a perfect hurdle—it doesn’t perfectly separate consumers by reservation price. There are some consumers with higher reservation prices who might jump the hurdle and fill out and mail the rebate form and other required materials. And some buyers with lower reservation prices might not be willing to jump the hurdle and do not buy the good.

So, Is Price Discrimination a Bad Thing?

Believe it or not, price discrimination does have benefits. In the end, sellers can sell more goods by using price discrimination than if they sell only at one price. The extra units sold create additional profits for the firm (assuming the goods are sold above the cost of production). In short, sellers can expand the market for their product by offering it at different prices to different consumers.

Buyers also benefit from price discrimination. Those with lower reservation prices would be excluded from buying the good if the rebate were not offered. In this case, some buyers whose reservation price is at least as high as the discounted price—and are willing to jump the hurdle—benefit from price discrimination. Of course, some buyers with high reservation prices might pay more than if the firm had not chosen to price discriminate. If the seller were to pick one price rather than two, the single price would probably be lower than the highest price under price discrimination. In our scenario, instead of price points at $100 and $80, perhaps the single price would have been $95.

Choose one of the following common marketing tactics and discuss how it can be used as a hurdle:
•Special sales offering discounted prices from 4 a.m. to 6 a.m.
•Commercial airlines with restricted supersaver airfares

Include in your discussion specific information on why the hurdle would most likely not be challenged by the government as an illegal form of antitrust behavior.

In: Economics

Marsellus and Mia have a married niece, Yolanda (age 26), who lives and works in San...

  1. Marsellus and Mia have a married niece, Yolanda (age 26), who lives and works in San Francisco, CA. When Yolanda’s husband went to jail for a botched coffee shop robbery in the middle of the CTY, they decided to help Yolanda financially until she could get a higher paying job. They paid her mortgage payments for November and December. The payments included property taxes of $800 and interest of $1,200.
  2. For the prior tax year, Marsellus and Mia had a Federal income tax overpayment of $55 that they applied toward their current year tax liability. Mia’s income tax withholdings for the CTY are $12,000 (Federal) and $3,200 (state). Marsellus made quarterly payments of $30,000 (Federal) and $10,000 (state) for a total of $120,000 (Federal) and $40,000 (state).
  3. Marsellus and Mia do not have any foreign bank accounts or trusts, and they don’t wish to donate to the presidential election campaign. For the past several years, they have itemized their deductions. They do not have investments in any virtual currency (e.g. Bitcoin).

Mia is filing jointly with her husband Marsellus using the cash basis. How do you treat these activities on their joint 2019 tax return and what tax forms should be used?

In: Accounting

Cost Accounting

Bright Co. Ltd manufactures electrical repairs components. The company has determined that the total cost of producing the components is:

C = 100 + 50q

Furthermore the company has estimated the price for each component to be

P = 100 - q

Based on this information determine

i). The break-even quantity.

ii). The profit when 25 components are produced and sold.

In: Economics