“US oil prices turned negative for the first time on record on Monday April 20th, 2020 after oil producers ran out of space to store the oversupply of crude left by the coronavirus crisis, triggering an historic market collapse which left oil traders reeling.” (The Guardian, April 20th, 2020) On April 21st, 2020 the US president Donald Trump tweeted: “We will never let the great U.S. Oil & Gas Industry down. I have instructed the Secretary of Energy and Secretary of the Treasury to formulate a plan, which will make funds available so that these very important companies and jobs will be secured long into the future!”

a. Plot the price of oil (crude or brent) for the past 12 months period and explain the decrease in the price by using demand and supply framework.

The following table summarizes two hypothetical situations for the US Steel market. The first column depicts the situation in the presence of a tariff. The second column depicts the situation with free trade.

                                                                        With                                        Free

                                                                        Tariff                                       Trade

World price of steel                                        $400/ton                                  $400/ton

US price of steel                                             $600/ton                                  $400/ton

Steel bought in US                                          10 million tons                        12 million tons

Steel produced in US                                      4 million tons                          2 million tons

20) If the labor input is 2 person-hours per finished ton of steel, what is the cost to consumers of steel per domestic steel industry job saved by the tariffs? (Assume 2000 person-hours = 1 job.)

options:

Woodbridge crop. is assessing the viability of a new condo project. It would need to spend $2 million to purchases the land today and then $2 million per year for each of the next two years to build the condo development which would have 20 units.

Woodbridge will conduct an auction at the end of the year one to sell the first 10 units which are expected to sell for an average price of $350,000 each.

At the end of year two the remaining 10 units would be auctioned and are expected to sell for an average price of $375,000 each. There is no residual value to the developer.

If the appropriate discount rate is 15% - what is the NPV of this project? Assume that all cost and revenue items occur at the end of the year( except of course the initial land acquisition.) What is the NPV if the appropriate discount rate is 30%?

The Metchosin Corporation has two different bonds currently outstanding. Bond M has a face value of $30,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $3,100 every six months over the subsequent eight years, and finally pays $3,400 every six months over the last six years. Bond N also has a face value of $30,000 and a maturity of 20 years; it makes no coupon payments over the life of the bond. The required return on both these bonds is 12% compounded semiannually, what is the current price of bond M and bond N? (Do not round intermediate calculations. Round the final answers to 2 decimal places.)

Facebook has gone public by issuing equity. As an analyst for a bank, you've estimated that the company will have a Beta of 1.2. You know that Facebook just gave a dividend of $4.00 per share. You anticipate high growth of this dividend for the first few years. You predict that dividend will grow by 20% for three years. After that, you anticipate growth to be a more modest 5% per year. The risk-free rate is 2% and the average return of the market is 13%.

1. What is the expected return of Facebook’s stock?

2. What is the expected price TODAY of Facebook’s stock?

3. What is the dividend yield of the stock this year and next year (from t=0 to t=1 AND from t=1 to t=2)?

4. What is the expected price of the stock next year?

Consider a newly issued straight bond with par value of $1,000 and 3 years until maturity. It makes semi-annual coupon payments at a coupon rate of 12%. The bond sells at a yield to maturity of 14%.

a. List the cash flows of the bond.

b. Calculate the current value of these cash flows as if they were zero-coupon bonds. For example, in half a year, the bond is going to pay a coupon of $60. Treat this coupon payment as a zero-coupon bond with par value of $60 and find its present value.

c. Determine the price of the straight bond. Compare this result to the portfolio of zero-coupon bonds from b.

d. Determine the price of the bond on the day after the first coupon, assuming that the yield to maturity has not changed.

Repeat your calculations for a yield to maturity of 10%.

1. Overconfidence is most likely to be displayed by:

A) A financial advisor with a three-year record of outperformance

B) An individual investor with 100% allocation to a broad equity index

C) The board of trustees of a college endowment fund comprised of liberal arts professors

D) A foundation with 100% allocation to risk-free government bonds because of low risk tolerance

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2. A rational investor would most likely:

A) Use emotional cues to re-balance portfolios

B) Take shortcuts when making asset allocation decisions

C) Completely and accurately process covariance data

D) Be influenced by the frame of an investment decision

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3. Sarah recently reviewed her portfolio as part of her year-end performance assessment. She sold several stocks that had positive results for the year but held on to two stocks that were below her purchase price. She did not re-evaluate the potential performance for these stocks. Which form of bias is she exhibiting?

A) Hindsight bias

B) Confirmation bias

C) Loss aversion

D) Overconfidence bias

The Monetary System and Policy Below represents the monetary system in the US: Small time deposits $1,100 billion Demand deposits and other checkable deposits $800 billion Savings deposits $1,350 billion Money market mutual funds $900 billion Traveler's checks $30 billion Large time deposits $750 billion Currency $150 billion Miscellaneous categories in M2 $40 billion 4. From the value of M2 you found in question 1, assume that the price level is 100 and real output is valued at $218.5 billion.

What is the current velocity of money? Velocity = (P x Y) /M 100 x $218.5 / $5,120 = 4.26 5.

Continuing from the previous question. The Federal Reserve is currently using the M2 money supply as a guide to help them in their policy goals. The Federal Reserve wants to promote a healthy economy. The Federal Reserve, in an attempt to improve the economy, injects $500 billion into the economy over the course of the year. During that same year, real output grew to $223.83 billion. Based on this, what is the new rate of inflation?

2. In Apple’s just-released financial report, it had an earnings per share of E0 = $4. It has also

just paid dividend per share of D0 = $1. The risk-free rate is 0%, Apple stock's beta is 1, and

the expected market return is 10%. Currently, Apple has a stock price of $100. You assume

Apple's dividend grows at a constant rate.

a. What is Apple's ROE implied by the dividend discount model? (That is, you need to use the

dividend discount model to solve Apple’s ROE)

After reading Apple's financial statements, you find that Apple's net income is 9 million and its shareholders' equity is 100 million.

b. What is Apple ROE calculated from its financial statement

c. What is Apple's intrinsic value? Is Apple undervalued or overvalued

d. Assume you are the advisor to Tim Cook, the CEO of Apple, you tell him the stock's intrinsic

value will increase to $40 if he starts now to pay all earnings as dividends. Show him the

calculation.

Save-Mart Center Inc. began operations on May 1 and uses a perpetual inventory system. During May, the company had the following purchases and sales for one of its products:

Instructions

(a)  

Determine the cost of goods sold and cost of ending inventory using (1) FIFO and (2) average cost. Ignore the effect of income tax. (For average cost, use unrounded numbers in your calculations but round to the nearest cent for presentation purposes in your answer.)

(b)  

What guidelines should Save-Mart consider in choosing between the FIFO and average cost formulas?

(c)  

Which cost formula produces the higher gross profit and net income?

(d)  

Which cost formula produces the higher ending inventory valuation?

(e)  

Which cost formula produces the higher cash flow?