Suppose we had two stocks, A and B. Both are selling for $10 in the market. Stock A has an expected rate of return of 2%, while stock B has an expected rate of return for 6%.

(a)What is the expected income one would receive from holding Stock A? How about for Stock B?

(b)Given that their market prices are equal, which stock do you think incurs a greater amount of risk? Why?

Suppose the market changes, such that now the perceived risks of Stock A and B are identical (but the expected income one receives from holding the stock does not change from the values you calculated in (a)).

(c)Compared to the price of Stock B, will Stock A have a lower, higher, or same price? Why?

(d)How does the expected rate of return for Stock A compare to the expected rate of return for Stock B after the change in the market?

(e)Suppose, after the market changes, the price of Stock B remains at $10. What is the price of Stock A?

1. Use duration to explain the “negative convexity” exhibited by callable bonds. Why is negative convexity a “negative” attribute from the investor’s viewpoint?

2. What happens to the “average life” of a pool of mortgages when prepayment speed increases? Why does prepayment speed increase when interest rates decrease? Discuss the negative convexity exhibited by mortgage-backed “passthrough” certificates in the context of duration and pre-payment speed.

3. Suppose a financial institution currently has a positive duration gap. How would its net worth be expected to vary with changes in interest rates? Explain. Explain how a financial institution could “immunize” its net worth from changes in interest rates.

4. In the context of duration gap management (or asset/liability management), explain the difference one would expect to see in the duration of the assets of a life insurance company as opposed to a commercial bank, assuming both institutions want to immunize their exposure to interest rate risk.

Exercise 22-14 Carey Company had sales in 2016 of $1,560,000 on 60,000 units. Variable costs totaled $900,000, and fixed costs totaled $500,000. A new raw material is available that will decrease the variable costs per unit by 20% (or $3). However, to process the new raw material, fixed operating costs will increase by $100,000. Management feels that one-half of the decline in the variable costs per unit should be passed on to customers in the form of a sales price reduction. The marketing department expects that this sales price reduction will result in a 5% increase in the number of units sold. Prepare a projected CVP income statement for 2017: (a) assuming the changes have not been made. CAREY COMPANY CVP Income Statement Total Per Unit $ $ $ $ (b) assuming that changes are made as described. (Round per unit to 2 decimal places, e.g. 15.25.) CAREY COMPANY CVP Income Statement Total Per Unit $ $ $ $ LINK TO TEXT Question Attempts: 0 of 3 used SAVE FOR LATER SUBMIT ANSWER

Variable rate CD’s = $90 Treasury bills = $150 Discount Loans = $20 Treasury notes = $100 Fixed rate CDs = $160 Money Market deposit accts. = $140 Savings deposits = $90 Fed Funds borrowing = $40 Variable rate mortgage loans $140 Demand Deposits = $40 Primary Reserves = $50 Fixed rate loans = $210 Fed Funds Lending = $50 Equity Capital = $120 A. Develop a balance sheet from the above data. Be sure to divide your balance sheet into rate-sensitive assets and liabilities as we did in class and in the examples. B. Perform a Standard Gap Analysis and a Duration Analysis using the above data if you have a 1.15% decrease in interest rates and an average duration of assets of 5.4 years and an average duration of liabilities of 3.8 years. C. Indicate if this bank will remain solvent after the valuation changes. If so, indicate the new level of equity capital after the valuation changes. If not, indicate the amount of the shortage in equity capital.

It is the year 2021 and Pork Barrels, Inc., is considering construction of a new barrel plant in Spain. The forecasted cash flows in millions of euros are as follows:

The spot exchange rate is $1.27 = €1. The interest rate in the United States is 11%, and the euro interest rate is 8%. You can assume that pork barrel production is effectively risk-free.

1. b. What are the dollar cash flows from the project if the company hedges against exchange rate changes?

What are the dollar cash flows from the project if the company hedges against exchange rate changes? (Negative amounts should be indicated by minus sign. Enter your answers in millions. Do not round intermediate calculations. Round "Forward rate" to 3 decimal places and "Cash flow" to 2 decimal places.)

The topic of global warming increasingly appears in the news. It has the potential to impact companies' operations through changes in governmental regulations, new reporting requirements, necessary operational changes , and so on. The Institute of Management Accountants (IMA) conducted a survey of senior finance professionals to gauge members' thoughts on global warming and its impact on their companies. The survey found that 65% of senior finance professionals believe that global warming is having a significant impact on the environment.

Suppose that you select a sample of 100 senior finance professionals.

a.) What is the probability that the sample percentage indicating global warming is having a significant impact on the environment will be between 64% and 69%

b.) The probability is 90% that the sample percentage will be contained within what symmetrical limits od the population percentage?

c.) The probability is 95% that the sample percentage will be contained within what symmetrical limits of the population percentage?

d.) Suppose you selected a sample of 400 senior finance professionals. How does this change your answers in a-c?

Some environmentalists claim that the ways we raise and collect animals and fish for food are fundamentally unethical. They point to the suffering of animals within the factory farming industry, the pollution caused by untreated animal waste, the use of hormones and antibiotics, the decimation of fish populations, and the fact that current farming practices are ultimately unsustainable in terms of their environmental impact. Making the changes that these environmentalists claim are necessary, however, would likely be devastating to the agricultural and fishing industries, to the chemical and biochemical companies that support them, and to the way of life of millions of people. These changes might also result in increased food prices and in less food being available to the ever-increasing human population. How do you think we should balance the moral claims on this issue? Should the concerns of environmentalists and animal rights activists impinge on your desire to eat however you so choose? Does the protection of jobs and communities trump environmental concerns? Why or why not? Read and respond to two classmates' posts. Give source for your answer

Explain how the sympathetic nervous system (and endocrine system) act directly to regulate heart rate and thus cardiac output. Include a detailed description of the mechanism (include the target cells, the proteins, signaling molecules, ions, and changes in membrane pontial where appropriate) and explain how the mechanism operates to alter heart rate.Explain how the parasympathetic nervous system acts to directly regulate cardiac output (1 mechanism). Discuss each mechanism separately including a detailed description of each mechanism (include the target cells, the proteins, signaling molecules, ions, and changes in membrane pontial where appropriate). Make clear how each affects cardiac output. This shoul require about half a page.Explain in detail the Frank-Starling law of the heart. Be sure to define what it is, and describe how it operates (the mechanism). Explain why it is an important way that cardiac output is regulated. Demonstrate your understanding by describing a particular scenario when it would operate and its significance.

A $1,000 face value bond has a coupon of 9% (paid annually) and will mature 16 years from today?

A. Assume that the yield-to-maturity is 6%. What is the bond’s: i. Duration ii. Modified Duration

B. Assume that the bond’s yield-to-maturity immediately changes from 6% to 5.9% (the bond still has 16 years to maturity). i. Estimate the % change in the bond’s price using modified duration ii. What is actual bond price (at YTM = 5.9%), and the % price change (from YTM = 6% to 5.9%)?

C. Assume that the bond’s yield-to-maturity immediately changes from 6% to 5% (the bond still has 16 years to maturity). i. Estimate the % change in the bond’s price using modified duration ii. What is actual bond price (at YTM = 5%), and the % price change (from YTM = 6%)? D. Why is the estimated % price change closer to the actual price change in Part B than it is in Part C? Be precise!

Minion, Inc. has no debt outstanding and a total market value of $422,400. Earnings before interest and taxes, EBIT, are projected to be $55,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 14% higher. If there is a recession, then EBIT will be 20% lower. The company is considering a $205,000 debt issue with an interest rate of 6%. The proceeds will be used to repurchase shares of stock. There are currently 8,800 shares outstanding. Ignore taxes. Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant.

a-1) calculate the return on equity, ROE, under each of the three economic scenarios before any debt is issued.

a-2) calculate the percentage changes in ROE when the economy expands or enters a recession.

b-1) assume the firm goes through the proposed recapitalization. calculate return on equity, ROE, under each of the three economic scenarios.

b-2) assume the firm goes through with the proposed recapitalization. calculate the percentage changes in ROE when the economy expands or enters a recession.