PRICING BONDS AT A PREMIUM -

(a) Calculate the price of a 10 percent coupon (annual coupons), $1,000 face value 20-year bond if the appropriate discount rate is 3 percent. Show your return if you hold this bond for three years and discount rates don't change. (INCLUDE FORMULAS USED TO SOLVE PROBLEM).

PRICING BONDS WITH SEMI-ANNUAL COUPON PAYMENTS -

(b) Calculate the price of a 4 percent coupon (annual coupons), $100 face value, 2-year bond if the coupon is paid semi-annually and the six-month discount rate is 3 percent. Calculate your actual return if you hold this bond for one year and the discount rate does not change. (INCLUDE FORMULAS USED TO SOLVE PROBLEM).

Assume a two consumer world: The demand for consumer 1 is: P = 100 – Q The demand for consumer 2 is: P = 90 – Q MC = ATC = $12 The current price is $12 a. Assume a firm charges each person the maximum entrance fee. What would each person pay? b. Assume a firm charges each person the same entrance fee what would each person pay? c. Assume the entrance fee is the same for each person and the firm also decides to charge a $20 price. What entrance fee should the firm charge each person? How much is the firm’s profit? Is the profit higher or lower than in question b above? How much higher or lower?

M/P = 24 + 0.8Y ? 400r

C =2+0.8(Y?T)?200r

I =30?200r
NX =24?0.1Y?2e
Y =C +I +G+NX

You are given the following values for various variables: rw = 0.05; M/P = 100;G = 10 and the budget is balanced. Using the model, find the values for Y, e and the components of demand. Verify that the values you found for consumption, investment and net exports satisfy the goods-market equilibrium condition, given the value of G. Finally, suppose that the nominal exchange rate ( enom ) is 0.8

and the foreign price level ( PFor ) is 1.0. Use this information to find the domestic price level and the nominal value of the money supply (M).

8. Suppose the demand and supply are described by the following equations: D(p)=500-50p and S(p)=-100+50p.

8a. What are the equilibrium price and quantity?

8b. Draw a graph showing consumer and producer surplus when a market is in equilibrium. Label them C and P respectively

8c. Draw a graph to show the effect of a $4 per-unit tax on suppliers:

8d. What are the equilibrium price and quantity after the tax

8e. What are consumer and producer surplus when the market is in equilibrium after the tax? Label C and P.

8f. What is total revenue collected after the tax is implemented? Label it T on the Graph.

8g. Contrast your answer of b to that of e and f. What is the implication from this analysis?

1. Let’s say that a $50 strike call pays a 2.0% continuous dividend, r = 0.07, σ = 0.25, and the stock price is $48.00. What is the profit or loss, per share, for a short call position if the option expires in 60 days and the price rises to $50.00 after 5 days?

Correct Answer= $0.84 loss per share

Question- how do we get to this?

2.Assume S = $33.00, σ = 0.32, r = 0.06, div = 0.01. You short 100 $35 strike calls at 68 days until expiration. Under a delta hedge position, what is your overnight profit/loss if the stock rises

Correct Answer = $ 7.62 loss overnight

Question - how do we get to this?

CDE Ltd has provided you with the following data relating to the product manufactured by his factory: Selling price per unit $ 100 Variable manufacturing costs per unit 48 Fixed manufacturing costs per annum 250,000 Variable marketing, distribution and administration costs per unit 16 Fixed non-manufacturing costs per annum 182,000.

CDE Ltd has spare capacity and receives a special order from an interstate retailer for 1,000 units at a price of $80 per unit. Briefly explain why CDE Ltd should accept or reject the order based on financial analysis. List two qualitative factors CDE Ltd ought to take into consideration in a special order decision.

On December 21, 2020, you purchased 100 shares of ABC company at $11 per share. You plan to sell your shares on December 21, 2021 and are concerned about downside risk. A put option on ABC stock with an exercise price (K) of $40 is currently priced (P) at $2 per share. Also, two call options on ABC stock with exercise prices (K) of $40 and $65 are priced (C) at $2.5 and $1.50 per share, respectively. All options expire on December 21, 2021. What will be net profit/loss per share on a long collar (use K=$65 call) if the stock price is $0 per share? A. $28.5 B. $53.5 C. $58.5 D. $38.5

Suppose: 1) 1 year futures price=$1000, 2) interest rate = 0%, and 3)for K=$1000, the premium on a 1 year call (C) is $100 and on a 1year put (P) $150.

a. Does put-call parity hold? If not, relative to each other which option is overpriced and which underpriced?

b. Describe a profitable and risk free arbitrage, that is, what would you long today and what would you short?

c. For your arbitrage described in question b. what are your profits/losses if the price of the asset in one year takes the following values: $800, $900, $1000, $1100, $1200, or $1300?

d. As you and others undertake the trades described in question b. how will prices adjust?

Suppose the storage cost for gold is $70 per ounce per year and the interest rate for borrowing or lending is 3% per annum, compounded continuously. Storage costs are assessed when you take delivery of the gold, but you can pay them at a later date with accumulated interest.

1. Show how you could make an arbitrage profit if the June and December futures contracts for a particular year trade at $1,350 (spot price) and $1,400 per ounce (spot price), respectively, and show how the arbitrage works assuming a contract size of 100 ounces. Ignore daily settlement (marking to market) in answering this question.

2. What storage cost would eliminate this arbitrage opportunity?

This is the only information that I received.

5. The risk-free rate of return is 8%, the expected rate of return on the market portfolio is 15%, and the stock of Xyong Corporation has a beta of 1.2. Xyong pays out 40% of its earnings in dividends, and the latest earnings announced were $10 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyong will earn an ROE of 20% per year on all reinvested earnings forever.

(a) What is the intrinsic value of a share of Xyong stock?

(b) If the market price of a share is currently $100 and you expect the market price to be equal to the intrinsic value one year from now, what is your expected one-year holding period return on Xyong stock?