The government has five bonds in issue .Each has a par value of $100,pays coupon interest annually and is redeemable at its par value at the end of the stated maturity term. The table below summaries the relevant information about each of the five government The following additional information is available in respect of each bond:

GHI Plc is a stock exchange listed company. The company has in issue Bond X that has a coupon rate of 7% and is redeemable at its par value of $100 in four years’ time. Coupon interest on Bond X is paid annually.

GHI Plc has now announced the issue of bond A which is a five year Bond. Bond A has a par value of $100 and will be redeemed at this par value in five years’ time from the issue date. The bond will pay annual coupon interest at the rate of 6.5%.As a result of this this bond issue, the credit rating of the company will drop from the current credit rating of A to the credit rating of BBB

The following tables showing the credit spreads, in basis point are available from the credit rating agency. They are applicable to the industry sector in which GHP Plc operates

Credit spreads in basis points

Required

1. Calculate the government bond annual spot rate for years from 1 to 5 by bootstrapping the above coupon paying government bonds and state the shape of the resulting government bond yield curve.
2. Identify and explain four(4) possible reasons why the credit rating agency has decreased GHI plc credit rating from A to BBB
3. Calculate the percentage change in the price of GHI plc bonds arising from the decrease in the company credit rating from A to BBB and briefly explain why the bonds prices are likely to change in that way.
4. Calculate the issue price of GHI plc’s proposed Bond A
5. Calculate the yield to maturity of GHI Plc’s proposed Bond A and comment on your result.

Use the following information for questions 1 through 6.

Best Linens manufactures towels and other linens. Material is introduced at the beginning of the process in the Cutting Department. Conversion costs are incurred (and allocated) uniformly throughout the process. As the cutting of material is completed, the pieces are immediately transferred to the Sewing Department. Data for the Cutting Department for the month of March 2019 follow:

Work-in-process, February 28—50,000 units

100 percent complete for direct materials; 40 percent completed for conversion costs actual costs of direct materials, $70,500; actual costs of conversion, $34,050

Units started during March,              225,000

Units completed during March         200,000

Work-in-process, March 31             75,000 units

100 percent complete for direct materials; 20 percent completed for conversion costs

Direct materials added during March [actual costs] $342,000

Conversion costs added during March [actual costs]          $352,950

1. Assuming Best Linens uses the weighted-average method to account for inventories, what are the equivalent units of work for the month of March for Direct Materials and Conversion Costs?

2. Assuming Best Linens used the weighted-average method to account for inventories, what is the cost per equivalent whole unit produced during March?

3. Assuming Best Linens uses the weighted-average method to account for inventories, what is the assignment of costs to work-in-process at the end of March?

4. If Best Linens uses the First-in, First-out (FIFO) method to account for inventories, what are the equivalent units of work for the month of March for Direct Materials and Conversion Costs?

5. If Best Linens uses the First-in, First-out (FIFO) method to account for inventories, what is the cost per equivalent unit for March for both Direct Materials and Conversion Costs?

6. Assuming Best Linens uses the First-in, First-out (FIFO) method to account for inventories, what is the assignment of costs to units completed and transferred to the Sewing Department during March?

7. In the Sewing Department, additional direct materials are added to the product at the end of production. Without prejudice to your answer for questions 1 through 9, assume that 200,000 units were transferred from the Cutting Department and that the weighted-average method is used. Data for February follow:

Work-in-process, February 28—70,000 units (30 percent complete as to conversion)

Units completed during March—240,000 units

Work-in-process, March 31—30,000 units (80 percent complete as to conversion)

For the Sewing Department, what are the equivalent units of work done in March for Transferred In, Direct Materials, and Conversion Costs?

Apply the following information to your data from question #7:

8. Standard costs for the Cutting Department—Direct materials: $1.50 per unit; Conversion costs $1.75 per unit, what is the standard cost of units transferred from the Cutting Department during March?

9. Using the information from question 8 regarding standard costs, what is the conversion costs variance for the month of March?

10. Provide the journal entry to record inventory costs and direct-material variances for the month of March.

3) Perfectly competitive markets

PLEASE DO NOT ANSWER A-D PLEASE ONLY ANSWER E,F,G

# of Contraptions

Total Cost

0. 0 500

1. 1 580

2. 2 640

3. 3 690

4. 4 730

5. 5 760

6. 6 800

7. 7 850

8. 8 950

9. 9 1200

10. 10 2000
    c) If market price equals $100, how many units should be produced? What is revenue? What is profit? Add these columns to your Table too. d) What is the fixed cost? Would the number of units produced change if the fixed cost went down? Why or why not?

e) Firms now exit the contraption market, and contraption price goes up to $250. Graph this result, showing market and firm graph side by side. How many units will a firm with the above cost function produce? What will profit be? (It might be helpful to show a new Table or at least add a couple of columns to the existing one).

f) At this point, will more firms exit, or will new firms start to enter the market? Explain.
g): What is the long run equilibrium price? What is profit? (Show all calculations) Why will firms not leave the market?

PRICE (dollars per smoothie); Quantity demanded (smoothies per hour)

1.90 ; 1,000

2.00 ; 950

2.20 ; 800

2.91; 700

4.25 ; 550

5.25 ; 400

5.50 ; 300

_________________________________________________________________________________________________________

Quantity (smoothies per hour) ; Marginal cost (dollars per additional smoothie) ; Average variable cost (dollars per smoothie) ; Average total cost (dollars per smoothie)

3 ; 2.50 ; 4.00 ; 7.33

4 ; 2.20 ; 3.53 ; 6.03

5 ; 1.90 ; 3.24 ; 5.24   

6 ; 2.00 ; 3.00 ; 4.67

7 ; 2.91 ; 2.91 ; 4.34

The market for smoothies is perfectly competitive.

The top table sets out the market demand schedule for smoothies. Each of the 100 producers of smoothies has the costs shown in the bottom table when it uses its least-cost plant.

The market price $____ a smoothie and the market quantity is ___ smoothies an hour.

(answer to 2 decimal places for the market price.)

The quantity produced by each firm is _____ smoothies an hour. Each firm_______.

A. 7; makes zero economic profit.

B: 8; makes zero economic profit.

C. 7; incurs an economic loss of $10.01 an hour.

D. 6; incurs an economic loss of $10.01 an hour.

10. Suppose a perfectly competitive firm’s demand curve is below its average total cost curve. Under which conditions will a firm continue to produce in the short run?

If the supply curve intersects the marginal cost curve above the average variable cost curve

If the demand curve intersects the marginal cost curve above the average variable cost curve.

11. Study Questions and Problems #11 Suppose the industry equilibrium price of residential housing construction is $100 per square foot, and the minimum average variable cost for a residential construction contractor is $110 per square foot. You should advise the owner of the firm to...….

a. Shut down

b. Decrease output

c. Increase output

12.

Suppose independent truckers operate in a perfectly competitive industry and an increase in demand creates positive economic profits for firms in the short run.

Indicate what happens in the long run to each factor in the following table. (Check all that apply.)

True or False: Given these conditions, the independent trucking industry is a constant-cost industry.

True

False

The firm Kappa has just decided to undertake a major new project. As a result, the value of the firm in one year’s time will be either $120 million (probability 0.25), $250 million (probability 0.5) or $360 million (probability 0.25). The firm is financed entirely by equity and has 10 million shares. All investors are risk-neutral, the risk-free rate is 4% and there are no taxes or other market imperfections.

(a) What is the value of the company and its share price?

Kappa decides to issue debt with face value $146 million due in one year and use the proceeds to repurchase shares now. Assume now that bankruptcy costs will be 15% of the value of the firm’s assets in the event of default on debt repayment.

2. (b) What is the value of the debt now? What is its yield?

3. (c) What is the expected value of the firm and the price per share? How many

   shares will be repurchased?

4. (d) Assume Kappa decides instead to issue debt with face value $100 million due in one year and repurchase shares with the proceeds. What is the firm’s value now? Why? What is its share price?

5. (e) Explain how the presence of corporate taxes would influence Kappa’s restructuring decision.

Consider a simple economy that produces two goods: pens and muffins. The following table shows the prices and quantities of the goods over a three-year period.

Use the information from the preceding table to fill in the following table.

From 2016 to 2017, nominal GDP decrease or increase , and real GDP decrease or increase

The inflation rate in 2017 was A- -25% B- 0.3%, C- 25%, D- 80%, E- 125%

Why is real GDP a more accurate measure of an economy's production than nominal GDP?

A) Real GDP includes the value of exports, but nominal GDP does not.

B) Real GDP is not influenced by price changes, but nominal GDP is.

C) Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes.

5. Real versus nominal GDP

Consider a simple economy that produces two goods: pencils and oranges. The following table shows the prices and quantities of the goods over a three-year period.

Use the information from the preceding table to fill in the following table.

From 2019 to 2020, nominal GDP (Decreased/Increased), and real GDP(Decreased/Increased) .

The inflation rate in 2020 was (-47.5%, -0.5%, 47.5%, 52.5%, 190.5%) .

Why is real GDP a more accurate measure of an economy's production than nominal GDP?

- Real GDP does not include the value of intermediate goods and services, but nominal GDP does.

- Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes.

-Real GDP is not influenced by price changes, but nominal GDP is.

1. Answer the following using the production function F(L, K) = L^1/2K^1/2, input prices fixed at w =4 and v = 9. There are two different types of firms. Big firms have SR capital fixed at 144, and small firms have SR fixed capital of 64.

a) Show that for the big firms with K = 144, SC_b(q) = q² /36 + 1296 and for the small firms with fixed capital of 64, SC_s(q) = q²/16 + 576. Use this to find SMC_b(q) and SMC_s(q)

b) Show that if the market demand is Q_D=-1900P + 41040, there is a LR competitive equilibrium with 40 big firms with a fixed capital of 144 and 100 small firms with a fixed capital of 64.

c) What does the fact that firms of different sizes can co-exist in LR equilibrium tell us about the production function? Can you verify that conclusion from the production function?

d)  Show that the LR number of identical firms large firms (K=144) is 84 and this makes the LR price a little bigger than the price in (b).. Explain why “Reality” prevented us from getting the same price as in (b).

Suppose the monthly market for an agricultural commodity is characterized by the following equations: QS =–35+35P QD =100–10P

(a) where QS and QD are quantities in units and P is the price per unit. Graph the supply and demand curves. Be sure to calculate the P and Q intercepts for demand and the P intercept for supply. Calculate and illustrate the equilibrium price and quantity. [Hint: Show your work.

(b) Calculate both the demand and supply elasticity around the equilibrium point. [Hint: you can use either the point method or the average arc (midpoint) method.

(c) Would the entry of new producers increase or decrease total spending on the good? Explain with reference to your answer from part (b). Would the entry of new demanders lead to an increase or decrease in total revenue to producers?

(d) Suppose the government institutes a supply management program that restricts the quantity to 60. It enforces this by granting quotas for 60 units of output to existing producers. What is the new price and quantity traded? Does this policy create deadweight loss (DWL) in the market? Briefly explain and identify any DWL in your diagram.

(e) What is the value of a unit of quota? Illustrate in your diagram. What is the total value of all units of the quota?