Question 1-3. Assume the following options are currently available for British pounds (₤):

•Call option premium on British pounds = $.04 per unit

•Put option premium on British pounds = $.03 per unit

•Call option strike price = $1.56

•Put option strike price = $1.53

•One option contract represents ₤31,250.

1. At a long strangle position, what is your profit (loss) when spot exchange rate changes to $1.40

1. -$0.04
2. +$0.14
3. +$0.10
4. +$0.06
5. -$0.06

2. What is the profit (loss) you earn from the Call option in the long strangle position, when spot exchange rate changes to $ 1.53

1. -$0.04
2. -$0.03
3. +$0.03
4. +$0.01
5. -$0.01

3. Determine the break-event point (s) for the long strangle

1. $1.53 and $1.56
2. $1.46 and $ 1.56
3. $1.46 and $ 1,63
4. $1.49 and $1.63
5. $1.48 and $ 1.63

Consider a monopolist facing a constant elasticity demand curve ?(?) = 12? ^−3 .

a) Assume that the total cost function is ??(?) = 5 + 4?. Use the inverse elasticity pricing rule (IEPR) to obtain the profit maximizing price that this monopolist should charge.

b) How would your result in part (a) change if the demand curve changes to ?(?) = 12? ^−5 , but still assuming the same cost function as in part (a)? Interpret your answer.

c) Consider a monopolist facing a constant elasticity demand curve ?(?) = 12? ^−3 . Assume that the total cost function is ??(?) = 5 + 2?^ 2 . Use the inverse elasticity pricing rule (IEPR) to obtain the profit-maximizing price that this monopolist should charge.

d) How would your result in part (c) change if the demand curve changes to ?(?) = 12?^ −5 , but still assuming the same cost function as in part (c)? Interpret your answer.

Consider a monopolist facing a constant elasticity demand curve ?(?) = 12? −3 .

a) Assume that the total cost function is ??(?) = 5 + 4?. Use the inverse elasticity pricing rule (IEPR) to obtain the profit maximizing price that this monopolist should charge.

b) How would your result in part (a) change if the demand curve changes to ?(?) = 12? −5 , but still assuming the same cost function as in part (a)? Interpret your answer.

c) Consider a monopolist facing a constant elasticity demand curve ?(?) = 12? −3 . Assume that the total cost function is ??(?) = 5 + 2? 2 . Use the inverse elasticity pricing rule (IEPR) to obtain the profit-maximizing price that this monopolist should charge.

d) How would your result in part (c) change if the demand curve changes to ?(?) = 12? −5 , but still assuming the same cost function as in part (c)? Interpret your answer.

Use both the TVM equations and a financial calculator to find the following values. Round your answers to the nearest cent. (Hint: Using a financial calculator, you can enter the known values and then press the appropriate key to find the unknown variable. Then, without clearing the TVM register, you can "override" the variable that changes by simply entering a new value for it and then pressing the key for the unknown variable to obtain the second answer. This procedure can be used in parts b and d, and in many other situations, to see how changes in input variables affect the output variable.)

An initial $200 compounded for 10 years at 3.3 percent. $ _________

An initial $200 compounded for 10 years at 6.6 percent. $__________

The present value of $200 due in 10 years at a 3.3 percent discount rate. $________

The present value of $200 due in 10 years at a 6.6 percent discount rate. $_________

We are evaluating a project that costs $604,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at $55,000 units per year. Price per unit is $36, variable cost per unit is $17, and fixed costs are $685,000 per year. The tax rate is 21 percent, and we require a return of 15 percent on this project.

A. Calculate the accounting breaK-even point.

B. Calculate the house -case cash flow abd NPV. What is the sensitivity if NPVto changes in the sales figure? Explain what your answer tells you about a 500-unit decrease in projected sales.

C. What is the sensitivity of OCF to changes in the variable cost figure?Explain what your answer tells you about $1 decreases is estimated variable costs.

Consider a ten-year bond with 5% coupon issued by Good Health Food Stores. The ten-year U.S. Treasury note yields 2.5%. Which of the following is correct?

1. If GHFS’s credit spread widens and the Treasury yield increases, the GHFS bond price will surely decline.
2. If GHFS’s credit spread widens and the Treasury yield decreases, the GHFS bond price may rise or decline, depending on the relative sizes of the changes.
3. If GHFS’s credit spread narrows and the Treasury yield increases, the GHFS bond price will surely rise.
4. If GHFS’s credit spread narrows and the Treasury yield increases, the GHFS bond price may rise or decline, depending on the relative sizes of the changes.
5. If GHFS’s credit spread narrows and the Treasury yield does not change, the GHFS bond price will surely rise.

A,B,D,E

I have the answers but can you please explain why they are

Background:

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(The final assessment is applied in nature and encourages you to use the tools developed in the course content to analyse and make sense of the world around you. In 2020 economies around the world have experienced unprecedented shocks to their internal and external balance situations driven by necessary closures and shutdowns of economic activity to deal with the Covid 19 health crisis. Recovery from deep Global crisis can be uneven and some economies are better positioned to recover than others. Your final assessment task for IME is to apply the theory developed in the course to the current world events from the Australian Perspective)

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Exchange rate determination in the short run and the long run - What can theory tell us about current and likely future changes in the value of AUD– assessment of policy mechanisms such as interest rate changes that may impact on the value of the AUD (500 words):

1. The following represents demand for widgets (a fictional product):

Q_D = 14,735 – 200P + 0.0001M - 0.5P_R

where P is the price of widgets, M is income, and P_R is the price of a related (fictional) good, the wodget. Supply of widgets is determined by

Q_S = 250P - 800

1. Determine whether widgets are a normal or inferior good, and whether widgets and wodgets are substitutes or complements.
2. Assume that M = $55,000 and P_R = $31.00. Solve algebraically to determine the equilibrium price and quantity of widgets.
3. Generate a supply/demand graph in Excel. Be sure that P is the vertical axis and Q the horizontal. Does the graphical equilibrium correspond to your algebraic equilibrium?
4. Now assume two events occur: demand changes such that the intercept in the demand equation rises to 16,000 and supply conditions change such that

Q_S = 275P + 790. Solve algebraically for the new equilibrium price and quantity of widgets after these two changes.

2. Explain why you agree or disagree with each of the following statements:

a. "A nation's currency will depreciate if its inflation rate is less that that of its trading partners."

b. " A nations whose interest rate falls more rapidly than that of other nations can expect the exchange value of its currency to depreciate."

c. "A nation whose economy grows more slowly than its major trading partners can expect the exchange value of its currency to appreciate."

d. "A nation's currency will appreciate if its interest rate rises relative to that of its trading partners and its income level falls relative to that of its trading partners." -

If the exchange rate changes from $1.70 = 1 pound to $1.68 = 1 pound, what does this means for the dollar? For the pound? What if the exchange rate changes from $1.70 = 1 pound to $1.72 pound?

Charlotte Henry is the advertising manager for Bargain TV Store. She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $25,000 in fixed costs to the $250,000 in fixed costs currently spent. In addition, Charlotte is proposing a 5% price decrease ($50 to $47.5) will produce a 20% increase in sales volume (50,000 to 60,000) according to market research. Variable costs will remain at $25 per TV since there is no change to purchasing or manufacturing. Management is impressed with Charlotte's research but concerned about the effects these changes will have on the break-even point.

• Compute the current break-even point in units, and compare it to the break-even point in units if Charlotte's ideas are used.
• Prepare a Cost-Volume-Profit (CVP) analysis, including a proforma income statement for current operations and if Charlotte's changes are adopted.