Chapter Three Exercises
Exercise 3.5
At a used dealership, let X be an independent variable representing
the age in years of a motorcycle and Y be the dependent variable
representing the selling price of used motorcycle. The data is now
given to you.
X = {5, 10, 12, 14, 15}
Y = {500, 400, 300, 200, 100}
A.) Construct a 95% confidence interval for B1.
B.) Do the data provide sufficient evidence to indicate that X
contributes information to the prediction of Y? (hint: t-test)
In: Statistics and Probability
SWIN Ltd manufacturers a number of specialised electronic components, including ALPHA Sensors. SWIN Ltd has the capacity to produce 10,000 units of ALPHA per year. Currently it is operating at 80 per cent capacity. The selling price for ALPHA is $100 per unit. The variable cost per unit is $39. Fixed cost allocated to producing Alpha is $100,000 per year. SWIN Ltd receives a special order for 3,000 units of ALPHA. The opportunity cost associated with taking this special order is:
In: Accounting
Consider a two-period binomial tree model with u = 1.05 and d = 0.90. Suppose the per-period interest rate is 2%. Suppose the initial stock price is $100. Consider $95-strike call and put options on this stock. Which of the following statement is false based on above information?
The put premium is $12.01
Possible payoffs of a call at the end of the two periods are $14.25, $0, and $0
Possible payoffs of a put at the end of the two periods are $14, $0.5, and $0
The call premium is $10.28
In: Finance
Apple Incorporated (AI) board of directors has indicated that they will repurchase AI’s stock effective July 1st 2020. You currently hold 100 AI’s stock. Explain in detail, the concept of “information content” to be derived from the board of director’s pronouncement. Discuss the likely impact of this pronouncement to AI’s stock price? In respect of this announcement, discuss the concept of the “signaling theory” and how will managers of AI be placed in an advantageous position ahead of the normal investor? (Word count limit (250-500)
In: Accounting
You have been given the opportunity to purchase a $100 Transocean, Inc. corporate bond for $96.24. The bond was issued on 10/1/2001 and matures on 10/1/2031. It has a coupon rate of 7.5% per year and coupons are paid twice a year. If your MARR for bonds of this grade (Moody’s rating = Caa1) is 8.8% per year (nominal) should you purchase the bond today at this price?. You must draw a correct cash flow diagram to get full credit for this problem.
In: Accounting
Consider three different US Treasury securities with maturities T = 1, 2 and 3 years, all with principal of $100. As usual convention, today is time t=0.
One year Treasury bill trades at price ? = $97
Two year Treasury note which pays 4% coupon annually, trades at ? = $100.60
Three year Treasury note which pays 5% coupon 5% annually, trades at ? = $101.90
Compute YTM (yield-to-maturity, y) of all three bonds.
In: Finance
Calculate the duration for a bond with an annual coupon of 8%,
nominal value of 100 euros, time until maturity 5 years and yield
at maturity equal to 10%.
a) What is the modified duration of the bond?
b) What do we call yield to maturity at the end of a bond and what
does it represent? What is the relationship between the current and
the nominal value of the bond when the bond is traded for, under,
or even?
c) If the yield on maturity increases sharply from 10% to 10.30%,
what will be the new bond price?
In: Finance
In: Finance
Assume coupons are paid annually. Here are the prices of three bonds with 10-year maturities. Assume face value is $100.
Bond Coupon (%) Price (%)
3 87.50
5 106.50
9 137.50
a. What is the yield to maturity of each bond? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
b. What is the duration of each bond? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
In: Finance
In: Finance