1. Suppose in a duopoly market there are two firms, 1 and 2, each with a cost function given as TC₁ = 10Q₁ and TC₂ = 10Q₂. The inverse demand in the market is P = 100 – 2(Q₁ + Q₂). The firms are homogeneous product duopoly.
   1. Suppose the market is characterized by Cournot oligopoly. Calculate each firm’s profit-maximizing output, price, and profit. Be sure to show all steps needed for this question.
   2. Now suppose the market is characterized by Stackelberg oligopoly. Calculate each firm’s profit-maximizing output, price, and profit.
2. 3. Now suppose each firm colludes in its price and output decision. Calculate each firm’s profit-maximizing output, price, and profit.

risk free interest rate = 0.08
price of stock at expiration = St
St is unknown quantity, st > 0
one contract = 100 share
1. we implement bull put at strike price 47.5 and 42.5 on a stock, receving a net payment or 1.45 on this transaction
a. is this buy or selling, call or puts, and which strike price in each case?
b. what is the max value profit for one contract? ( T=1/4 (3 months) ) explain the reasoning
c. suppose that at expiration ( 3 month) , stock price is 45. what is the value of the profir expressed as real number ( positive, negative or zero) for this transaction for one contract? explain the reasoning

A non-dividend paying stock sells for $110. A call on the stock has an exercise price of $105 and expires in 6 months. If the annual interest rate is 11% (0.11) and the annual standard deviation of the stock’s returns is 25% (0.25), what is the price of a European put option according to the Black-Scholes-Merton option pricing model.

A call and put expire in 0.41 year and have an exercise price of $100. The underlying stock is worth $90 and has a standard deviation of 0.25. The annual risk-free rate is 11 percent. The annual dividend yield (q) on the stock is 2%. The put option price from the three-period binomial model is:

what is company's WACC ?

Calculate the purchase price of the following bonds. Indicate whether the bonds are priced at a discount, at par or at a premium. Give your answers in dollars and cents to the nearest cent.

Quoted coupon rates and market rates are nominal annual rates compounded semi-annually.

a)Price = $

This bond is priced at:

a discount
par
a premium

b)Price = $

This bond is priced at:

a discount
par
a premium

c)Price = $

This bond is priced at:

a discount
par
a premium

Suppose the firm knows that, there are three types of buyers: ?? = 100 − 4?,?? = 400 − 6?, and ?? = 300 − 10?. The firm’s ATC=MC=5.

1. Suppose the firm operates as a single price monopoly, what will be the market price, market quantity, and profit?

2. What will be consumer surplus, producer surplus, and deadweight loss? Draw a graph!

3. Under which conditions can this firm use segmented price discrimination?

4. Suppose that the firm conditions from c) hold, what should the firm charge in each

   market? What is output in each market? What is total market quantity? What is the

   firm’s profit?

5. Does segmented price discrimination of the market improve efficency? Why?

The average resident has a demand for fresh oranges which is a linear function of the prices of the three goods.

Q=4000 - 200 f + 100 c + 400 p

The subscript ‘f’ denoted fresh oranges, the subscript “c” OJ(orange juice) concentrate, and the subscript “p” peanuts.

Question: Assuming the price of OJ concentrate is fixed at $1 and fresh oranges’ price is fixed at $6, find the cross-price elasticity of demand for fresh oranges relative to peanuts for the average consumer when the price of peanuts is at $2, $8, and $10. What does that tell you about how the average consumer’s views fresh oranges compared to peanuts?

1. What would be the yield to maturity for a bond with a $70 coupon, interest paid semiannually, $1000 maturity value, 12 years to maturity and a quoted price of 104.50 (Actual price of $1045)? Remember we are taking the view of the investor, so the price needs to be entered with a negative sign because if we buy the bond, that is cash out of our account

2. If the quoted price fell to 99 (actual price $990), what would be the pretax yield to maturity? How about if the quoted price instead rose to 110.5 (actual price $1105)? What do you conclude from this about the relationship between the bond price and the market rate of interest?

3. A further complication related to bonds is that interest is deductible for tax purposes, so to arrive at an after-tax cost of debt for the firm, rather than a return for investors, it is necessary to multiply the yield by (1- tax rate) to get the after-tax cost of debt. For the first example with a quoted price of 104.5 (actual price of $1045), assuming that the tax rate is 20%, what would be the after-tax cost of debt?

4. To sum up the cost of debt, we only really have three variables to work with - the market rate of interest, the bond price and the firm's tax rate. The coupon payment, time to maturity and the maturity value for a specific bond are effectively fixed. As those first three variables (market interest, bond price and firm's tax rate) change, up or down, how does that affect the firm's after-tax cost of debt?