A stock, priced at $47.00, has 3-month call and put options with exercise prices of $45 and $50. The current market prices of these options are given by the following:

Now, assume that you already hold a sizable block of the stock, currently priced at $47, and want to hedge your stock to lock in a minimum value of $45 per share at a very low up-front initial cost.

a) What hedge strategy from Chapter 7 would you recommend and what would you option transactions be to set up the holding (per 100 shares of stock that you already own) And, what would be the up-front cost to set up these option position?

b) What if the stock price falls appreciably over the next 3 months and ends up at $30. Relative to your starting point at time-zero when the stock was priced at $47, what is your dollar loss for the hedged position versus if you had not hedged and held the “long stock only” (again scaling by 100 shares of stock)? What would your percentage rate of return have been for your combined holdings (stock and options) from time-0 to time-T? What would your percentage rate of return have been for a comparable “long stock only” position over time-0 to time-T in this case? (Remember time-T is at option expiration).

c) Alternatively, what if the stock price had risen appreciably over the next 3 months and ends up at $65. Relative to your starting point at time-zero when the stock was priced at $47, what is your dollar gain for the hedged position versus if you had not hedged and held the “long stock only”? What would your percentage rate of return have been for your combined holdings (stock and options) from time-0 to time-T? What would your percentage rate of return have been for a comparable “long stock only” position over time-0 to time-T in this case?

ITIS1P97 Data Analysis and Business Modelling. Excel Questions

PROBLEM 1: RANIS Enterprise Solutions is the provider of hosted customer relationship management (CRM) solutions for Small to Medium Enterprises (SMEs). The headquarters are in Toronto, ON, and they have clients across the globe. Currently, they are charging a $500 monthly fee for their CRM services that they offer to 300 of their clients. They have recently been contacted by their software vendor and been told that with a $180,000 upgrade on their hardware and CRM software platform, they can substantially improve their direct marketing offerings. The new system will cost them nothing beyond the initial cost, but they will have to increase the number of their maintenance and support staff from 10 to 13 to be able to comply with their service level agreements. The maintenance staff is paid $800 weekly. Using the what-if analysis feature of MS Excel, answer the following questions:

A. If the management thinks the upgrade will cause the demand (# of clients) to grow uniformly (same percentage every month) until it doubles at the end of the third year (144 weeks), what will be the average weekly demand growth (percentage) for their service? Note: assume 1 month is 4 weeks.

B. Assuming this demand growth (from question 1) is achievable, should they invest in this upgrade if they want to break even (reach the status quo profit levels) within 1 year? Why? Hint: Consider the average client size for the 144 weeks while dealing with the proposed change.

C. What level of weekly demand increase (percentage) would justify the investment if RANIS wants to break even (reach the status quo profit levels) after 2 years? D. If the demand will stay the way it is, however, there is an opportunity for RANIS to charge more for this new service, to maintain current profitability, what should the new monthly fee for this service be?

Question 4: (Marks: 3)

The following table represents the percentage of teenagers in some selected countries who have used marijuana and the percentage who have used other drugs.

1. Determine the correlation coefficient, rounded to two decimal places, between the percentage of teenagers who have used marijuana and the percentage who have used other drugs. Show your work.

2. Does the following statement make sense? Explain your answer.

“I found a positive correlation for the data presented in the table relating the percentage of teenagers in various countries who have used marijuana and the percentage who have used other drugs. I concluded that using marijuana causes the use of other drugs.”

Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage

Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows:

It is expected that 7,200 units will be sold at a price of $120 a unit. Maximum sales within the relevant range are 9,000 units.

Required:

1. Prepare an estimated income statement for 20Y7.

2. What is the expected contribution margin ratio? Round to the nearest whole percent.
%

3. Determine the break-even sales in units and dollars.

4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
$

5. What is the expected margin of safety in dollars and as a percentage of sales?

6. Determine the operating leverage. Round to one decimal place.

Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage

Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows:

It is expected that 6,480 units will be sold at a price of $360 a unit. Maximum sales within the relevant range are 8,000 units.

Required:

1. Prepare an estimated income statement for 20Y7.

2. What is the expected contribution margin ratio? Round to the nearest whole percent.
%

3. Determine the break-even sales in units and dollars.

4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
$

5. What is the expected margin of safety in dollars and as a percentage of sales?

6. Determine the operating leverage. Round to one decimal place.

Lacy Construction has a noncontributory, defined benefit pension plan. At December 31, 2018, Lacy received the following information:

The expected long-term rate of return on plan assets was 10%. There were no AOCI balances related to pensions on January 1, 2018. At the end of 2018, Lacy amended the pension formula creating a prior service cost of $34 million.

Required:
1. Determine Lacy's pension expense for 2018.
2. Prepare the journal entry(s) to record Lacy’s pension expense, gains or losses, prior service cost, funding, and payment of retiree benefits for 2018

Determine Lacy's pension expense for 2018.

Prepare the journal entry(s) to record Lacy’s pension expense, gains or losses, prior service cost, funding, and payment of retiree benefits for 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions. (i.e., 10,000,000 should be entered as 10).)

1. Record the pension expense.

2. Record the gain or loss on plan assets.

3. Record the prior service cost.

4. Record the funding.

5. Record the payment of benefits.

Consider the natural log transformation (“ln” transformation) of variables labour cost (L_COST), and total number of rooms per hotel (Total_Rooms). 4.1 Use the least squares method to estimate the regression coefficients b0 and b1 for the log-linear model 4.2 State the regression equation 4.3 Give the interpretation of the regression coefficient b1. 4.4 Give an interpretation of the coefficient of determination R2 . Also, test the significance of your model using the F-test. How, does the value of the coefficient of determination affect the outcome of the above test? 4.5 Test whether a 1% increase of the total number of rooms per hotel can increase the labour cost by more than 0.20%? Use the 5% level of significance for this test.

L_COST   Total_Rooms     
2.165.000   412     
2.214.985   313     
1.393.550   265     
2.460.634   204     
1.151.600   172     
801.469   133     
1.072.000   127     
1.608.013   322     
793.009   241     
1.383.854   172     
494.566   121     
437.684   70     
83.000   65     
626.000   93     
37.735   75     
256.658   69     
230.000   66     
200.000   54     
199.000   68     
11.720   57     
59.200   38     
130.000   27     
255.020   47     
3.500   32     
20.906   27     
284.569   48     
107.447   39     
64.702   35     
6.500   23     
156.316   25     
15.950   10     
722.069   18     
6.121   17     
30.000   29     
5.700   21     
50.237   23     
19.670   15     
7.888   8     
3.500   15     
112.181   18     
30.000   10     
3.575   26     
2.074.000   306     
1.312.601   240     
434.237   330     
495.000   139     
1.511.457   353     
1.800.000   324     
2.050.000   276     
623.117   221     
796.026   200     
360.000   117     
538.848   170     
568.536   122     
300.000   57     
249.205   62     
150.000   98     
220.000   75     
50.302   62     
517.729   50     
51.000   27     
75.704   44     
271.724   33     
118.049   25     
40.000   30     
10.000   10     
10.000   18     
70.000   73     
12.000   21     
20.000   22     
36.277   25     
36.277   25     
10.450   31     
14.300   16     
4.296   15     
379.498   16     
1.520   22     
45.000   12     
96.619   34     
270.000   37     
60.000   25     
12.500   10     
1.934.820   270     
3.000.000   261     
1.675.995   219     
903.000   280     
2.429.367   378     
1.143.850   181     
900.000   166     
600.000   119     
2.500.000   174     
1.103.939   124     
363.825   112     
1.538.000   227     
1.370.968   161     
1.339.903   216     
173.481   102     
210.000   96     
441.737   97     
96.000   56     
177.833   72     
252.390   62     
377.182   78     
111.000   74     
238.000   33     
45.000   30     
50.000   39     
40.000   32     
61.766   25     
166.903   41     
116.056   24     
41.000   49     
195.821   43     
96.713   20     
6.500   32     
5.500   14     
4.000   14     
15.000   13     
9.500   13     
48.200   53     
3.000   11     
27.084   16     
30.000   21     
20.000   21     
43.549   46     
10.000   21     

A variable is normally distributed with mean 12 and standard deviation 4.

a. Find the percentage of all possible values of the variable that lie between 2 and 18.

b. Find the percentage of all possible values of the variable that exceed 5.

c. Find the percentage of all possible values of the variable that are less than 4.

You are the operations manager for an airline and you are considering a higher fare level for passengers in aisle seats. How many randomly selected air passengers must you​ survey? Assume that you want to be 95​% confident that the sample percentage is within 2.5 percentage points of the true population percentage. Complete parts​ (a) and​ (b) below.

Assume that nothing is known about the percentage of passengers who prefer aisle seats.

n=  

Assume that a prior survey suggests that about 32% of air passengers prefer an aisle seat.

n=

You are the operations manager for an airline and you are considering a higher fare level for passengers in aisle seats. How many randomly selected air passengers must you​ survey? Assume that you want to be 90​%confident that the sample percentage is within 1.5 percentage points of the true population percentage. Complete parts​ (a) and​ (b) below.

a. Assume that nothing is known about the percentage of passengers who prefer aisle seats. n=

b. Assume that a prior survey suggests that about 32​% of air passengers prefer an aisle seat. n=