Suppose an economy consists of 11 people: 10 farmers and one miner. All individuals have identical preferences, u(f,g) = ln(f) + 2ln(g), where f is a kilo of food, and g is a gram of gold. Each farmer is endowed with a 50 kilos of food and no gold. The miner is endowed with no food and one gram of gold. The farmers and the miner can trade food and gold at prices pf and pg. In the following, normalize the price of food to one, pf = 1.

a) For given prices (pf = 1 and pg), solve for a farmer’s optimal demand for food and gold given that the farmer has an endowment that has value 50.

b) For given prices (pf = 1 and pg), solve for the miner’s optimal demand for food and gold given that the miner has an endowment that has value 1 × pg .

c) Determine the equilibrium price of gold, pg*. How does the value of the miner’s endowment compare to that of the farmers altogether.

d) Suppose instead of 10 farmers, there are 100 farmers. In equilibrium, how valuable is the miner’s 1 gram of gold in terms of food, then?

The Horizon Corp. has 60 million shares of common stock with a current market price of $24.00 per share. They have $400 million in par value of long-term bonds outstanding that currently sell for $1,075 per $1,000 par value. The bonds have a coupon rate of 8.5% and a maturity of 20 years. Assume semi-annual coupon payments. Horizon also has $220 million in par value of preferred stock with a current market price of $108 per $100 of par value. The dividend on this preferred stock is $8.50 per year.

The dividend on common stock in the most recent year (i.e. D₀) was $1.30. The dividend growth rate is expected to be 4% per year for a long time.

Flotation costs on new preferred stock will be about 4%. On new common stock flotation costs would be about 8%. Flotation costs on new bonds would be negligible.

Assuming a combined state and federal marginal tax rate of 40%, estimate Horizon’s cost of capital. Assume that they use new common stock to finance expansions.

A fund manager has a Hong Kong stock portfolio worth $100 million with a beta of 1.15. The manager is concerned about the performance of the market over the next 2 months due to the recent coronavirus outbreak and plans to hedge the risk using Hang Seng Index futures. The 2- month futures price is 22,500. One contract is on $50 times the index. The initial margin is $150,000 per contract and the maintenance margin is $120,000 per contract.

(a) Determine the number of futures contracts required by the hedge and whether the fund manager should long or short futures.

(b) What price of the Hang Seng Index futures will lead to a margin call after entering into the transaction?

(c) At the horizon date, the portfolio value falls 9%, and the Hang Seng Index futures falls to 20,800. Determine the overall profit or loss of the hedging position and comment the hedging effectiveness.

(d) As an alternative strategy, what should the fund manager do if he wants to reduce the portfolio sensitivity to market risk, that is to say lowering the beta to 0.3?

A fund manager has a Hong Kong stock portfolio worth $100 million with a beta of 1.15. The manager is concerned about the performance of the market over the next 2 months due to the recent coronavirus outbreak and plans to hedge the risk using Hang Seng Index futures. The 2- month futures price is 22,500. One contract is on $50 times the index. The initial margin is $150,000 per contract and the maintenance margin is $120,000 per contract. (a) Determine the number of futures contracts required by the hedge and whether the fund manager should long or short futures. (b) What price of the Hang Seng Index futures will lead to a margin call after entering into the transaction? (c) At the horizon date, the portfolio value falls 9%, and the Hang Seng Index futures falls to 20,800. Determine the overall profit or loss of the hedging position and comment the hedging effectiveness. (d) As an alternative strategy, what should the fund manager do if he wants to reduce the portfolio sensitivity to market risk, that is to say lowering the beta to 0.3?

Meale Company makes a household appliance with model number X500. The goal for 2012 is to reduce direct materials usage per unit. No defective units are currently produced. Manufacturing conversion costs depend on production capacity defined in terms of X500 units that can be produced. The industry market size for appliances increased 10% from 2011 to 2012. The following additional data are available for 2011 and 2012: 2011 2012 Units of X500 produced and sold 10,000 11,000 Selling price $100 $95 Direct materials (square feet) 30,000 29,000 Direct material costs per square foot $10 $11 Manufacturing capacity for X500 (units) 12,500 12,000 Total conversion costs $250,000 $240,000 Conversion costs per unit of capacity $20 $20 Overall, was Meale's strategy successful in 2012? No, because the selling price per unit decreased. Yes, because operating income increased. Yes, because less direct materials were used. No, because more units were produced and sold.

On December 31, 2017, Berclair Inc. had 280 million shares of common stock and 3 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 56 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2018. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2018, was $350 million.

Also outstanding at December 31 were 30 million incentive stock options granted to key executives on September 13, 2013. The options were exercisable as of September 13, 2017, for 30 million common shares at an exercise price of $56 per share. During 2018, the market price of the common shares averaged $70 per share.

Required:

Compute Berclair's basic and diluted earnings per share for the year ended December 31, 2018. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

The Smith Company has 10,000 bonds outstanding. The bonds are selling at 102% of face value, have a 8% coupon rate, pay interest annually, mature in 10 years, and have a face value of $1,000. There are 500,000 shares of 9% preferred stock outstanding with a current market price of $91 a share and a par value of $100. In addition, there are 1.25 million shares of common stock outstanding with a market price of $64 a share and a beta of .95. The most recent dividend paid by the company on the common stock was of $1.10 and it expects to increase those dividends by 3% annually forever. The firm's marginal tax rate is 35%. The overall stock market is yielding 12% and the Treasury bill rate is 3.5%.

1. What is the cost of equity based on the dividend growth model?

2. What is the cost of equity based on the security market line?

3. What market weights should be given to the various capital components in the weighted average cost of capital computation?

4. What is the weighted average cost of capital using the cost equity calculated based on CAPM?

Can you show me how to work out the problem below to get the right answer in EXCEL please? Please show work and formulas to calculate the right answer

Two years ago an investor purchased a 6% semi-annual compounding coupon bond with a remaining maturity of 15 years at a price of (at that time) 85% of par. Today, i.e. two years after the purchase, the investor realizes that the bond has exactly the same price like it had two years ago (i.e. 85%). Based on this information, which of the following answers is correct:

Walmart Inc. (symbol: WMT) common stock currently trades at $106.76per share.

Jack is considering buying a calloption on WMT. He is given the following option, which will expire on 4/17/20.

[Table 5.1 Call price]

Jill is considering buying a put option on WMT. She is given the following option, which will expire on 4/17/20.

[Table 5.2 Put price]

A. (5 pts) Indicate if the 105-strike call option is in-the-money (ITM) or out-of-the-money (OTM)?

B. (5 pts) Indicate if the 105-strike put option is in-the-money (ITM) or out-of-the-money (OTM)?

C. (5 pts) If on April 17, 2020, WMT trades at $100, explain if Jack or Jill’s trade will be profitable.

D. The 105-strike call and 105-strike put were both sold at lower prices 5 days ago. Explain in one sentencewhy both call and put options have become more expensive.