In which of the following situations do you think an auction would be more useful, and in which—fixed price?

Items

Seller knows nothing about buyers' WTP

Seller knows that the highest WTP is $100

Seller knows that buyer's WTP falls somewhere between $0 and $100, with exactly one buyer willing to pay above $90

Seller knows that buyers' WTP falls somewhere between $0 and $100, with at least three buyers willing to pay above $90

Buyers are time-constra-
ined

A risky stock is currently trading at $100 and its market value a year later will be either $200 (if certain projects go well for the corporation) or $50 (if things turn out bad for those important projects). There is a one-year zero-coupon bond available with a par value $100 that currently trades for $90. Can you create a portfolio of the stock and the bond that will replicate the payoff of a call option on the stock with strike $100 and expiry in 1 year? Then, can you price the call? Explain carefully how will you do all this.

The U.S. Census Bureau announced that the mean sale price of new houses sold in 2011 was $267,900. Assume that the standard deviation of the prices is $90,000.

(a) If you select a random sample of n = 100, what is the probability that the sample mean will be less than $300,000?

(b) If you select a random sample of n = 100, what is the probability that the sample mean will be between $275,000 and $290,000?

(c) Between what two values symmetrically distributed around the mean are 80% of the sample mean home prices, when n = 100?

question1: An airline charges $2,100 for a first-class roundtrip ticket from Boston to Los Angeles and charges $370 for an economy-class roundtrip ticket on the same route. The airline observes that every seat in economy class is full and that much of the first-class cabin is empty. Sketch a graph that represents the supply and demand for first-class roundtrip tickets in this market. Briefly explain why this first-class ticket market is not in equilibrium when the daily price of a ticket is $2,100. On your graph, clearly indicate the gap that represents the size of the shortage or surplus this market is experiencing.

Question2: Suppose that the (inverse) demand equation for bananas is P=60-8Qd and the (inverse) supply curve for bananas is P = 4Qs in a local market. Quantities are measured in 10- pound bunches of bananas per day, and price is measured in dollars per bunch of bananas. Find the equilibrium quantity and price for a 10-pound bunch of bananas in this market. Suppose that the recent hurricane has harmed banana crops, such that the supply of bananas falls. The more limited supply of bananas results in a new (inverse) supply curve of bananas as follows: P=12 + 4Qs. Find the new market equilibrium quantity and price under these conditions. (Assume that the demand equation remains the same.) Compare the original equilibrium quantity and price to the new equilibrium quantity and price. Has price fallen or risen? Has quantity exchanged fallen or risen? Sketch a supply-and-demand graph to illustrate the market before and after the harm to the crops (graph paper is not required for this sketch). In this example, has supply increased or decreased? Are the directions of change in quantity and price that you found from your computations consistent with this supply increase or decrease?

Bond prices and maturity dates. Les Company is about to issue a bond with semiannual coupon payments, an annual coupon rate of 11​%, and a par value of ​$5,000. The yield to maturity for this bond is 10​%.

a. What is the price of the bond if it matures in 5​, 10​, 15​, or 20​years?

b. What do you notice about the price of the bond in relationship to the maturity of the​ bond?

a. What is the price of the bond if it matures in 5 ​years?

​$__________​ (Round to the nearest​ cent.)

b. What is the price of the bond if it matures in 10 ​years?

​$___________​ (Round to the nearest​ cent.)

c. What is the price of the bond if it matures in 15 ​years?

​$___________​ (Round to the nearest​ cent.)

d. What is the price of the bond if it matures in 20 years?

​$____________ ​(Round to the nearest​ cent.)

b. What do you notice about the price of the bond in relationship to the maturity of the​ bond? ​(Select the best​ response.)

A. As the time to maturity​ increases, the price of the bond increases first and then decreases.

B. As the time to maturity​ increases, the price of the bond decreases first and then increases.

C. As the time to maturity​ increases, the price of the bond decreases.

D. As the time to maturity​ increases, the price of the bond increases.

Given a 6 percent discount rate compounded quarterly, what is the present value of a perpetuity of $100 per month if the first payment does not begin until the end of year five? Please give explanation and formula! Thanks!

Suppose that Ally Financial Inc. issued a bond with 10 years until​ maturity, a face value of $1,000​ and a coupon rate of 7% ​(annual payments). The yield to maturity on this bond when it was issued was 6 %.

a. What was the price of this bond when it was​ issued? (round to the nearest cent).   

b. Assuming the yield to maturity remains​ constant, what is the price of the bond immediately before it makes its first coupon​ payment?

c. Assuming the yield to maturity remains​ constant, what is the price of the bond immediately after it makes its first coupon​ payment?

The company WayABC went public last year with its initial public offering price at $29, but its first day trading price was $25. Did investors like its IPO, and why did the firm attempt to price its initial stocks?

Basket of Goodies is positioning itself as an upscale manufacturer of gourmet gift baskets through the introduction of several production baskets as well as custom options. BOG will achieve this positioning by leveraging their competitive advantages. The competitive advantage is based on two factors, low overhead which supports reasonable prices, and an unrelenting desire for the highest quality product and service. 1. Overhead- BOG's overhead is particularly low because it is a home based business. Most of BOG's competition is based in retail shopping areas. While they receive more walk by traffic and therefore higher sales numbers, their rent is a very large monthly expense. BOG avoids this large expense by having the business run out of owner Susan Presento's home. Additionally, Susan will be using a modified version of JIT (just in time) inventory and assembling. Susan's husband passes by 90% of Susan's vendors on his way home from work so Susan is able to order inventory when she needs it and have her husband pick it up on the way home from work. This significantly lowers shipping costs and carrying costs for The Basket of Goodies Page 8 inventory. BOG will have some of the standard baskets in stock for walk by orders, but will try not to have large amounts in overhead. 2. Unrelenting desire for the highest quality product and service- Let's face it, this market space is already crowded and a mediocre gift basket service is not going to fly, so Basket of Goodies must have some sort of differentiating feature that lets it stand out. Susan only uses the finest quality ingredients and can afford to because of her low overhead. Additionally, she always follows the maxim that the customer must be 100% satisfied. That means she is willing to loose money on an occassional order, if necessary, to please a customer, confident that in the long run this is a wise business decision. 3.6 Strategies The single objective is to position Basket of Goodies as a manufacturer of unique, attractive, gourmet gift baskets for individuals as well as corporate customers. The marketing strategy will seek to create customer awareness regarding the product offerings, develop the customer base, and work toward building customer loyalty and referrals that will significantly decrease customer acquisition costs. BOG will seek to communicate the message that they offer a higher quality, gourmet alternative for gift baskets relative to the baskets currently available. This message will be communicated through various methods, tailored to each target market. The first method will be the use of a Website. The Website will have product information, company information, as well as ordering information and order taking. The site will be useful to both targeted groups, individuals as well as corporate customers. The second method will be brochures, primarily marketing to individuals. These brochures will be dispersed through many different sources. The last method of communication is networking and it is primarily for the corporate customer. Before founding Basket of Goodies Susan worked within the Human Resource Department of several larger corporations and has developed a large list of contacts. Susan will leverage these personal/professional relationships to generate business for BOG. Since she has worked within the HR departments before, she is quite familiar with the buying habits and decision making processes; key knowledge for generating corporate sales.

Question: How is the product positioned?