Full price, Accrued Interest and Flat price in the middle of a coupon period: Consider a gilt (UK government bond) paying interest on 14 May and 14 November, maturing on 14 November 2022. The coupon on the bond is 5%, and the gilt market uses the Act/Act convention. Calculate the full price, accrued interest and flat price if the bond is traded for settlement on 12 October 2019 at a yield to maturity of 5.5%.
In: Finance
Consider a 1-year forward contract on a stock with a price of $51. The current price of the stock is $50. A cash dividend payment of $2 per share is anticipated in 9 months. The interest rate is 3% per annum with continuously compounding. Assume that there are no transaction costs. (a) Determine the fair price and the initial value of the forward contract today. (b) Is there any arbitrage opportunity? Verify your trading positions taken at each point in time. (c) After 10 months, the stock price falls 2% and the interest rate remains unchanged. Calculate the value of the forward contract. What is the mark-to-market?
In: Finance
Compare and contrast the price elasticity of supply and price elasticity of demand, and define income elasticity and how it distinguishes normal and inferior goods.
In: Economics
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The own price elasticity of demand for Good Y is -1.75. Management reduces the price of Good Y by 5% to stimulate demand. As a result of this "pricing strategy," |
In: Economics
Define price ceiling and price floor and give an example of each. Which leads to a shortage? Which leads to a surplus? Why?
In: Economics
A put has strike price of $75. The put price is $10. Which of the following statements is the least accurate?
a)The highest profit the put writer can make is $10
b)The highest profit the put holder can make is $65
c)The lowest profit the put writer can make is –$75
d)The highest payoff the put writer can make is $0
e)The highest payoff the put holder can make is $75
In: Finance
What is the difference in the supply curves for a price-taking firm and a price-setting firm? Discuss:
In: Economics
When the price of good x increases by 2 and the price of good y increases by 3, what happens to the slope of the budget constraint (does it get steeper/flatter/stay the same)? Please show your work.
In: Economics
Suppose today's stock price of McDonald’s is $150. With probability, 60% the price will rise to $175 in one year and with probability, 40% it will fall to $140 in one year. What is the current price of a European call option with one year until maturity with a strike price of $160 if the risk-free rate of interest is 4%? Use a binomial tree.
In: Finance
Suppose the world price of bicycles is below the domestic price in a small open economy.
d. (3) Define and give an example of consumption dead weight loss
e. (3) Define and give an example of production dead weight loss.
2. (4) Give two reason why a nation might have import product standards?
3. (4) What is mercantilism? Is trade a zero-sum game?
In: Economics