Suppose that a pension fund has to make a payment of $1 million in 2 years time. It can hold a one year pure discount bond that will pay $1000 in 1 year; or a 3 year bond that will pay a coupon of $100 each year, will be redeemed for $1,000 at the end of the third year. The yield on each bond is 15%. (a) What is the price of each bond? (b) What is the duration of each bond. (c) How much of each bond should the fund hold to immunize itself against interest rate risk? Explain.

As treasurer of the Universal Bed Corporation, Aristotle Procrustes is worried about his bad debt ratio, which is currently running at 7.0%. He believes that imposing a more stringent credit policy might reduce sales by 5% and reduce the bad debt ratio to 5.0%. Assume current sales are $100.

Expected Profit?

If the cost of goods sold is 70% of the selling price, what is the expected profit on the more stringent credit policy? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Expected Profit?

1. Describe how is the CPI derived and what purpose does it serve?

2. What is the difference between the CPI and the GDP Deflator?

4. How does inflation affect society and who are the losers and gainers from inflation?

5. Define demand pull inflation and cost push inflation.

6. The salary of the president of the United States in 2000 was $400,000. In 1940, the president's salary was $75,000. If the Consumer Price Index was 8.1 in 1940 and 100 in 2000, the 1940 presidential salary measured in terms of the purchasing power of the dollar in 2000 would be:

1.Suppose you want to buy a car that costs $19,000. If the dealer is offering 100% financing at 6.2% APR for a 5 year loan, what would be the monthly payment? (Answer to the nearest penny)

2.Suppose you want to buy a house that costs $850,000. You are required to put 10% down, which means the amount to be borrowed is 90% of the price of the house. If you want a 30 year mortgage, and the borrowing rate is 5.3% APR, what would be your monthly payment? (Answer to the nearest penny)

Suppose you do a one-year straddle strategy using a Call and a Put. The strike price is $100. The underlying is the stock of company ABC. Assume the prices the stock can take next year are either $80 or $150. Both states of nature can reveal with 50% probability.
(a) What are the payoff you receive in the two possible scenarios stated before? Explain what is the option you exercise in every case. (b) What is the expected payoff if you paid $15 for the put and $25 for the call?

II. Bonus Versus Stock A. The company has offered you a $5,000 bonus, which you may receive today, or 100 shares of the company’s stock, which has a current stock price of $50 per share. Mathematically, what is the best choice? Why? B. What are the advantages and disadvantages of each option? Be sure to support your answers. C. What would you ultimately choose to do? What is your financial reasoning behind this choice? Consider supporting your answer with quantitative data.

The (inverse) demand for vitamin D dietary supplement is p = 85−2q and the cost function for any firm producing vitamin D is TC = (5q+F),where F is fixed cost.

(a) What is a marginal cost? How much of vitamin D would a monopolist produce? What price would it charge? How much profit would it earn?

(b) For which of the following values of F is a market for vitamin D a natural monopoly? F= $100, F= $200, F= $300, F= $400.

Solving the following system of equations, which is a model of price and quantity determination in a one-good, widget, market:

Q_d = 100– 10P + 2G …..(1)

Q_s = 60 + 20P - 3N……….(2)

Q = Q_d = Q_{s………………… ..(3)}

                           G= 11 …………………………(4)

                           N= 6 …………………………..(5)

(i)                     Find the equilibrium values of P and Q.  

(ii)               If G is up by 2 and other things are equal, What will be the new P and Q.

(iii)             If N is up by 2 and other things are equal, What will be the new P and Q.

Bond 1 has a 10% annual coupon rate, $1000 maturity value, n = 5 years, YTM = 10% (pays a $100 annual coupon at the end of each year and $1,000 maturity payment at maturity at the end of year 5). Bond 2 is a zero coupon bond with a $1000 maturity value, and n = 5years; YTM= 10%. (has no coupon payments; only a $1,000 maturity payment paid at maturity at the end of year 5).

What is the price, duration, and modified duration of both bonds?

Warrington LTD makes and sells one product. Unit costs for direct materials and direct labor are $24 and $36. In March, 20K units were produced, and total overhead was $214K. In April, 26K units were produced, and total overhead was $259K. The selling price of the unit is $100.

1. Compute the total fixed overhead of the company

2. Compute the contribution margin ratio

3. Compute the company's break-even point in sales dollars

4. Compute the number of units must be sold to have net income of $122K