Question 1

1. What would happen in the options market if the price of an American call were less than the value Max (0, S0 − X)? Would your answer differ if the option were European? Explain.

2. Critique the following statement made by an options investor in American call option: “My call option is very deep in-the-money. I don’t see how it can go any higher. I think I should exercise it.”

3. Why do higher interest rates lead to higher call option prices but lower put option

prices?

4. Suppose a European put price exceeds the value predicted by put–call parity. How could an investor profit? Demonstrate that your strategy is correct by constructing a payoff table showing the outcomes at expiration.

5. Consider a two-period, two-state world. Let the current stock price be 45 and the risk-free rate be 5 percent. Each period the stock price can go either up by 10 percent or down by 10 percent. A call option expiring at the end of the second period has an exercise price of 40.
   1. Find the stock price sequence.
   2. Determine the possible prices of the call at expiration.
   3. Find the possible prices of the call at the end of the first period.
   4. What is the current price of the call?

Question 2

1. A portfolio manager desires to generate $10 million 100 days from now from a portfolio that is quite similar in composition to the S&P 100 index. She requests a quote on a short position in a 100-day forward contract based on the index with a notional amount of $I0 million and gets a quote of $25.2. If the index level at the settlement date is $35.7, calculate the amount the manager will pay or receive to settle the contract.

2. A forward contract covering a $10 million face value of T-bills that will have 100 days to maturity at contract settlement is priced at 1.96 on a discount yield basis. Compute the dollar amount the long must pay at settlement for the T-bills.

3. Consider an FRA that:
   • Expires/settles in 30 days.
   • Is based on a notional principal amount of $1 million.
   • Is based on 9O-day LIBOR.
   • Specifies a forward rate of 5%.

Assume that the annual 9O-day LIBOR 30-days from now (at expiration) is 6%. Compute the cash settlement payment at expiration and identify which party makes the payment.

4. Consider a long position of five July wheat contract futures contract each of which covers 5,000 bushels. Assume that the contract price is $2.00 per bushel and that each contract requires an initial margin deposit of $150 and a maintenance margin of $100. Compute the margin balance for this position after a 2-cent decrease in price on Day 1, a l-cent increase in price on Day 2, and a l-cent decrease in price on Day 3.

5. BB can borrow in the United States for 9%, while AA has to pay 10% to borrow in the United States. AA can borrow in Australia for 7%, while BB has to pay 8% to borrow in Australia. BB will be doing business in Australia and needs AUD, while AA will be doing business in the United States and needs USD. The exchange rate is 2AUD/USD. AA needs USD1.0 million, and BB needs AUD2.0 million. They decide to borrow the funds locally and swap the borrowed funds. The swap period is for five years. Calculate the cash flows for this swap.

Question 3

1. Explain why an option’s time value is greatest when the stock price is near the exercise price and why it nearly disappears when the option is deep-in- or out-of- the-money.

2. Call prices are directly related to the stock’s volatility, yet higher volatility means that

the stock price can go lower. How would you resolve this apparent paradox?

3. The value Max [0, X (1+r) ^−T − S0] was shown to be the lowest possible value of a European put. Why is this value irrelevant for an American put?

4. Buying an at-the-money put has a greater return potential than buying an out-of- the-money put because it is more likely to be in-the-money. Appraise this statement.

5. Explain the advantages and disadvantages to a covered call writer of closing out the position prior to expiration.

Question 4

Suppose that each of two investments has a 4% chance of a loss of $10 million, a 2% chance of a loss of $1 million, and a 94% chance of a profit of $1 million. They are independent of each other.

1. What is the VaR for one of the investments when the confidence level is

95%?

2. What is the expected shortfall when the confidence level is 95%?

3. What is the VaR for a portfolio consisting of the two investments when the

confidence level is 95%?

4. What is the expected shortfall for a portfolio consisting of the two

investments when the confidence level is 95%?

5. Show that, in this example, VaR does not satisfy the subadditivity condition, whereas expected shortfall does.

Q.6: Read the case and answer questions at the end adequately:                              12 marks

Imagine having a management system so successful people that refer to it with capital letters—the Lincoln Management System—and other businesses benchmark their own systems by it. That is the situation of Ohio-based Lincoln Electric. For a number of years, other companies have tried to figure out Lincoln Electric’s secret: how management coaxes maximum productivity and quality from its workers even during difficult financial times. Lincoln Electric is a leading manufacturer of welding products, welding equipment, and electric motors, with more than $1 billion in sales and 6,000 workers worldwide. The company’s products are used for cutting, manufacturing, and repairing other metal products.

Lincoln uses a diverse control approach. Tasks are precisely defined, and individual employees must exceed strict performance goals in order to achieve top pay. The incentive and control system is powerful. Production workers are paid on a piece-rate basis, plus merit pay based on performance. Employees are eligible for annual bonuses, which fluctuate according to the company’s profits, and they participate in stock purchase plans. A worker’s bonus is based on four factors: work productivity, work quality, dependability, and cooperation with others. Some factory workers at Lincoln have earned more than $100,000 a year.

However, the Lincoln system succeeds largely because of an organizational culture based on openness and trust, shared control, and an egalitarian spirit. Though the line between managers and workers at Lincoln is firmly drawn, managers respect the expertise of production workers and value their contributions to many aspects of the business. The company has an open-door policy for all top executives, middle managers, and production workers, and regular face-to- face communication is encouraged. Workers are expected to challenge management if they believe practices or compensation rates are unfair. Most workers are hired right out of high school, and then trained and cross-trained to perform different jobs. Some are promoted to executive positions because Lincoln believes in promoting from within.

One of Lincoln’s founders felt that organizations should be based on certain values, including honesty, trustworthiness, openness, self-management, loyalty, accountability, and cooperativeness. These values continue to form the core of Lincoln’s culture, and management regularly rewards employees who manifest them. Because Lincoln so effectively socializes employees, they exercise a great degree of self-control on the job. There are 100 workers for each foreman. There are less tangible rewards to complement the piece-rate incentive system. Pride of workmanship and feelings of involvement, contribution, and esprit de corps are intrinsic rewards that flourish at Lincoln Electric. Cross-functional teams, empowered to make decisions, take responsibility for product planning, development, and marketing. Information about the company’s operations and financial performance is openly shared with workers.

Lincoln places emphasis on anticipating and solving customer problems. Sales representatives are given the technical training they need to understand customer needs, help customers understand and use Lincoln’s products, and solve problems. This customer focus is backed up by attention to the production process through the use of strict accountability standards and formal measurements for productivity quality, and innovation for all employees. In addition, a software program called Rhythm is used to streamline the flow of goods and materials in the production process.

Lincoln’s system worked so well in the United States that senior executives decided to extend it overseas. Lincoln built or purchased eleven plants in Japan, South America, and Europe, with plans to run the plants from the United States using Lincoln’s expertise with management control systems. Managers saw the opportunity to beat local competition by applying manufacturing control incentive systems to reduce costs and raise production in plants around the world. The results were abysmal and nearly sunk the company. Managers at international plants failed to meet their production and financial goals every year; they exaggerated the goals sent to Lincoln’s managers to receive more resources, especially during the recession in Europe and South America. Many overseas managers had no innate desire to increase sales, and workers were found sleeping on benches because of not enough work. The European labor culture was hostile to the piecework and bonus control system. The huge losses in the international plants, which could not seem to adopt Lincoln’s vaunted control systems, meant the company would have to borrow money to pay U.S. workers’ bonuses, or forgo bonuses for the first time in Lincoln’s history. Top managers began to question whether the Lincoln Management System could be transferred to other countries and wondered whether they simply misunderstood how to apply it in other cultures.

Questions

1. What types of control —feedforward, concurrent, or feedback—are illustrated in this case?                                                                                                                                  4 marks
2. Based on what you have read, what do you think makes the Lincoln System so successful in the United States?                                                                                                 4 marks         

3 -What is the problem with transporting Lincoln’s control systems to other national cultures? What suggestions would you make to Lincoln’s managers to make future international manufacturing plants more successful? 4 marks

Q = A university is hiring new construction company and need to come with a blueprint. They are debating on how much distance/km belonging to a forested park can be preserved. Within this region, there are 250 residents and each have an identical inverse dmnd function where P = 20 - Q. Here, Q represents the amount of distance/km preserved. P is the representing per distance cost; that an individual is willing to pay for the amount of distance (Q).

Note: Margnal cost value is $800 per distnce/km

1. To support this question, Incorporate the marginal cost curve/, marginal benefit curve and write aggregate demand and plot these into graph

2.How much km is required fro be preserve in the context of efficient allocation,

Mary Ann is the wife of Kevin Lomax (an associate of John Milton) and earns a little extra money by making bee inspired accessories. She sells them on Saturday mornings in Central Park to joggers and other passerby’s. Sara charges $5 per accessory (unit) and has unit variable costs (beads, wire rings, etc.) of $2. Her fixed costs consist of small pliers, a glue gun, etc., which cost her $90.

a. Calculate Mary Ann’s break-even units

b. Prepare a profit-volume graph for Mary Ann

c. Prepare a cost-volume-profit graph for Mary Ann

PLEASE SHOW ALL WORK/CALCULATIONS & EXPLAIN HOW YOU CREATED THE GRAPHS IN EXCEL.

Tanya is playing PokemonGo, and searching for a Snorlax. The game is programmed such that pokemon are generated randomly, and there is a 7% chance that a Snorlax will appear. Tanya will search Mill Creek park until she captures 473 random pokemon. Consider the proportion in her sample that will be Snorlaxes. As we have learned, the sample proportion is a random quantity.

What type of random variable can we use to approximate the sample proportion? Type the name of the distribution using all capital letters.

What is the mean of the sample proportion? Input your answer as a decimal, not a percent.  

What is the standard deviation of the sample proportion? Input your answer as a decimal, not a percent.

What is the approximate probability that more than 6% of her sample will be Snorlaxes? Input your answer as a decimal, not a percent.

The Cash account of Guard Dog Security Systems reported a balance of $2,540 at December 31​, 2024. There were outstanding checks totaling $400 and a December 31 deposit in transit o f$100. The bank​ statement, which came from Park Cities​ Bank, listed the December 31 balance of $3,340. Included in the bank balance was a collection of $510 on account from Brendan Ballou​, a Guard Dog customer who pays the bank directly. The bank statement also shows a $30 service charge and $20 of interest revenue that Guard Dog earned on its bank balance. Prepare Guard Dog​'s bank reconciliation at December 31.

Guard Dog Security Systems

Bank Reconciliation

December 31, 2024

Classify the following descriptions as either Inferential statistics or descriptive statistics. Enter I if it is inferential statistics. Enter D if it is descriptive statistics.

The average age of the students enrolled in Statistics last semester was 29.7 years old.

There is a relationship between attending class and the grade you receive in the class.

Based on a random sample, it was concluded that the average cost of a hotel room in Chicago was greater than one in Atlanta.

A survey of 100 Statistics students found that the median score for test #1 was a 78.4%.

A study has concluded that the average credit card debt of college graduates had increased from the year 2009 to 2010.

The average Amazon.com rating of the book "The Complete Idiot's Guide to Statistics" by twenty-six reviews is 4.6 on a scale of 1 to 5.

For this week's discussion, the focus will be on examining Porter's Five Forces as a tool for looking at the pressures on profits. Specifically, you will be looking at defining Porter's Five Forces and applying this tool to the market structures and pressures on profits of a chosen group of firms.

Instructions

In your discussion post, address the following:

• Chose one of the following groups and use Porter's Five Forces to analyze the pressures on profits for your chosen group's firms.
  • Group 1: the accommodations industry (e.g., Hilton, Marriott Bonvoy, InterContintental Hotel Group).
  • Group 2: the wireless telecommunications industry (e.g., Verizon, AT&T, T-Mobile).
• If you want to dig deeper into how one of the firms views the challenges it faces, you might want to look at the firm's investor page.

2.(a) Ball A is released from rest. It collides with the stationary ball B with a velocity 3.2 m/s; immediately after the collision ball A travels in the same direction with velocity 2.3 m/s.   

Ball A has mass 0.26 kg; ball B has mass 0.07 kg.

Calculate

(i) the velocity of ball B immediately after the collision..

(ii) the maximum height reached by ball B.

(b) A driver is travelling at a constant speed of 15.4 m/s in a 1800 kg car.

At this speed he then enters a large empty car park, and makes a U-turn, travelling in a complete half-circle of radius r.

The friction force between the tyres and the ground is 12.4 kN.

Calculate r.

In the case Las Vegas Sands v. Nehme, reported on page 380 of your textbook, the casino's "marker" was found by the court to be a negotiable instrument. The Venetian (a hotel owned by Las Vegas Sands LLC) was then allowed to sued Nehme for not paying a negotiable instrument. In a 500 word paper discuss the required elements for a negotiable instrument. Is it feasible that the casino marker contained all of these elements? Explain whether or not you think that gambling casinos should be able to advance credit to gamblers. From what you know about how alcohol affects a person's capacity to contract, is the fact that most gamblers are also consuming alcohol a factor in your decision? Do you think people would not gamble as much if casinos did not offer "markers?"