Glassworks and Clearsmooth compete in the local market for windshield repairs. The market size (total available in profits) is $10 million per year. Each firm can choose whether to advertise on local television. If a firm chooses to advertise in a given year, it costs that firm $3 million. If one firm advertises and the other doesn’t, then the former captures the whole market. If both firms advertise, they split the market 50:50. If both firms choose not to advertise, they also split the market 50:50.

1. Display this game in a game table in the space below:

2. What is the Cooperating strategy for each firm? __________________________________________________

3. What is the Defecting strategy for each firm? ____________________________________________________

4. Suppose the two firms know they will compete for just one year. List all Nash equilibria: ________________________________________________________________________________________

5. Suppose the firms play this game for five years in a row, and they know that both firms are quitting the business at the end of the five years. What is the subgame perfect equilibrium for this five-period game? Explain. _________________________________________________________________________________ ________________________________________________________________________________________ ________________________________________________________________________________________

Suppose this game is played for five years in a row, and future profits are discounted with an interest rate of 20% per year.

6. What is the payoff for Glassworks if the Cooperating equilibrium prevails? ________________________________________________________________________________________ ________________________________________________________________________________________

7. Suppose Clearsmooth is playing a Grim Trigger strategy, and Glassworks decides to Defect in year 1. What is Glassworks’ payoff over the five year period? ________________________________________________________________________________________ ________________________________________________________________________________________

a. Should Glassworks Defect in year 1? _______________________________________________________

8. Suppose Clearsmooth is playing a Tit-for-tat strategy, and Glassworks decides to Defect in year 1, then return to Cooperate. What is Glassworks’ payoff over the five year period? ________________________________________________________________________________________ ________________________________________________________________________________________

a. Should Glassworks Defect in year 1? ___________________________________________________

Suppose this game is played for an indefinite period of time. 9. Below what interest rate should Glassworks refrain from Defecting if Clearsmooth is playing a Grim Trigger strategy? ________________________________________________________________________________________ ________________________________________________________________________________________

10. Below what interest rate should Glassworks refrain from Defecting if Clearsmooth is playing a Tit-for-tat strategy? ________________________________________________________________________________________ ________________________________________________________________________________________

Suppose there is a 25% probability (p = 0.25) that the game will continue for another period.

11. What is the effective rate of return? ___________________________________________________________ ________________________________________________________________________________________ a

. Should Glassworks Defect if Clearsmooth is playing a Grim Trigger strategy? Explain ________________________________________________________________________________________

b. Should Glassworks Defect if Clearsmooth is playing a Tit-for-tat strategy? Explain

Match the Weighted Average Cost of Capital to each of the scenarios given for ABC Corporation.

1. Target capital structure: 34% debt, 7% preferred stock and 59% common equity. Yield to maturity on bonds: 8.9%; Preferred stock dividend: $6.21 per year; current market price of preferred stock is $68.71. CAPM data for common equity: risk-free rate is 4.6%; market risk premium for the average stock is 4.2%; ABC has a beta of 1.69. ABC's marginal tax rate is 40%.

2. Target capital structure: 40% debt, 10% preferred stock and 50% common equity. Yield to maturity on bonds: 5.9%; Preferred stock dividend: $6.87 per year; current market price of preferred stock is $69.37. CAPM data for common equity: risk-free rate is 4.9%; market risk premium for the average stock is 4.1%; ABC has a beta of 1.96. ABC's marginal tax rate is 40%.

3. Target capital structure: 35% debt, 13% preferred stock and 52% common equity. Yield to maturity on bonds: 5.0%; Preferred stock dividend: $6.35 per year; current market price of preferred stock is $68.85. CAPM data for common equity: risk-free rate is 5.0%; market risk premium for the average stock is 3.0%; ABC has a beta of 2.35. ABC's marginal tax rate is 40%.

4. Target capital structure: 46% debt, 11% preferred stock and 43% common equity. Yield to maturity on bonds: 7.9%; Preferred stock dividend: $7.79 per year; current market price of preferred stock is $70.29. CAPM data for common equity: risk-free rate is 4.1%; market risk premium for the average stock is 5.5%; ABC has a beta of 1.87. ABC's marginal tax rate is 40%.

5. Target capital structure: 47% debt, 15% preferred stock and 38% common equity. Yield to maturity on bonds: 9.0%; Preferred stock dividend: $7.02 per year; current market price of preferred stock is $69.52. CAPM data for common equity: risk-free rate is 4.3%; market risk premium for the average stock is 11.0%; ABC has a beta of 0.80. ABC's marginal tax rate is 40%.

A.

8.51%

B.

9.03%

C.

9.35%

D.

8.87%

E.

9.59%

1. Consider two investments:
   1. Invest $1000 and receive $110 at the end of each month for the next 10 months.
   2. Invest $1200 and receives $130 at the end of each month for the next 10 months.

If this were your money, and you want to earn at least 12% interest on your money, which investment would you make, if any? What nominal interest rate do you earn on each investment?

(show all equations)

For a person that requires a10 percent annual return, which is better $1.00 today or $1.15 in one year?

Which is greater, the future value with compound interest of 4% or the future value with simple interest of 4%?

Which is greater, when 4% interest is compounded more than once a year, or 4% per year?

You have the right to receive $1000 in five years. Is the present value higher when the interest rate is 4% or when the interest rate is 8%.

If you want to know how long it will take to convert $100 to $400 at 8% interest, what type of problem is this and what function would you use?

If you want to know what you will have in 5 years at 8% if you invest $100 now, what type of problem is this and what function would you use?

If you want to know how much you need today to have $400 in 5 years at 8%, what type of problem is this and what function would you use?

If you want to know what rate of return is necessary to convert $200 to $600 over a 4 year period, what type of problem is this and what function would you use?

What is the difference between an ordinary annuity and an annuity due?

What is a perpetuity and how would you find the value of a perpetuity?

If small amounts of money occur before one large amount of money, what type of problem is this?

If you buy a house and take out a 5% mortgage and make payments over the next 30 years, what type of problem is this?

Loan A has a $100,000 borrowed at 10% for 10 years. Loan B has $100,000 borrowed at 11% for 10 years. Which loan will have the higher monthly payment?

Loan A has a $100,000 borrowed at 10% for 7 years. Loan B has $100,000 borrowed at 10% for 10 years. Which loan will have the higher monthly payment?

Tom puts $500 into a savings account for 20 years and earns 10% interest. Jerry puts $600 into a savings account for 20 years and earns 10% interest. Who has the higher future value?

Tom puts $500 into a savings account for 20 years and earns 8% interest. Jerry puts $500 into a savings account for 20 years and earns 10% interest. Who has the higher future value?

Tom puts $500 into a savings account for 10 years and earns 10% interest. Jerry puts $500 into a savings account for 10 years and earns 10% interest. Who has the higher future value?

18. Jesse just won the state lottery. He has been given the option of receiving either $5 million a year for the next 30 years, with the first payment paid today. Is this a present value or future value of an annuity due?

What is the difference between the coupon rate and the market rate or yield?

When, in a bond’s life, would the market rate (or yield) equal the coupon rate?

Why do these rates often diverge over time?

Do most corporations pay semi-annual interest payments or annual payments?

Do debtholders share in the upside of corporations or do they just get their interest payments and face value back (regardless of how well the company does in the future)?

What happens to bondholders when the company does poorly in the future and cannot make the interest payments?

Are all bondholders treated the same or do some bondholders have priority over others.

What is a debenture?

What are some typical secured bonds?

What is a mortgage?  

Would investors want higher interest payments (higher yields) or lower interest payments (lower yields).

Would Harley Davidson or Walmart pay a higher interest rate on a 20 year bond?

What influence does the number of years to maturity have on the risk and consequently the yield of a bond?

What do you call the agreement that delineates what the corporations will do during the life of the bond?

What is a sinking fund?

What are the two most common protective covenants in most corporate bonds?

Are most corporate bonds callable or not callable?

Is the call option good for the corporation or good for the investor?

When do corporations call their bonds when interest rates go up or when interest rates go down?

Who are the two largest credit rating agencies for corporate bonds?

What risk is the rating agencies rating when they rate bonds?

Securities that are rating with the top four credit ratings are considered what?

What are the inferior rated (less than the top four ratings) bonds called?

Are most bonds traded like stock or bought and sold (or held to maturity) through investment bankers?

PROBLEMS PORTION OF THE TEST:

Problem Section:

If an investment is expected to return of 11.75 percent in the future, a $200,000 investment will grow to how much in 25 years?

The answer is _______________.

To intend to buy a retirement home in 18 years and you expect that you will need $370,000 at the end of 18 years. If funds can be invested at an effective return of 7 percent a year, how much must you invest today to have the needed amount?

The amount needed to invest today is _________.

How long does it take to have a million dollars if you have $50,000 today and can earn 9% annually?

The number of years is _______________.

If you received a 18 cent dividend 12 years ago and you now receive a 77 cent dividend, how much has the dividend grown over this time period? (or at what rate of return has this dividend grown)?

The growth rate is _______________.

You decide to max-out your annual investment into your Individual Retirement Account and invest $5,500 at the end of each year for the next 32 years. Because you were frightened by the recent two market declines in the last 17 years, you decide to invest in a bond portfolio expected to earn only 4.8% annually (assume annual interest payments at the end of the year). How much will you have at the end of this investment period?

The answer is _______________.

What is the answer if you put the money into the account at the beginning of the year instead of the end of the year _________.

You decide to max-out your annual investment into your Individual Retirement Account and invest $5,500 at the end of each year for the next 32 years. If you are NOT frightened by the recent two market declines and decide to invest in a large stock portfolio, you expect to earn 10% annually. How much will you have at the end of this investment period?

The answer is _______________.

What is the answer if you put the money into the account at the beginning of the year instead of the end of the year _________.

You want $1,750,000 to upgrade your store in 15 years. The treasurer wants to make equal payments at the end of each year into a fund for the purpose of accumulating this amount. If the fund can earn an effective annual return of 8 percent, how much must the company invest at the end of each year?

The annual payment is _______________.

You borrowed $342,000 for the purchase of your new home. This loan carries an annual percentage rate of 4.9 percent. It will be paid off through equal monthly installments, including both principal and interest, over a 30-year period. What is the monthly payment required?

The monthly payment is _______________.

A credit card company runs an ad quoting a nominal interest rate of 29 percent on charges. What is the effective interest rate if interest is compounded quarterly? monthly?

The effective annual rate is ________if compounded quarterly and _______ if compounded monthly.

You plan to retire in 37 years and can invest to earn 8.5 percent. You estimate that you will need $102,000 at the end of each year for an estimated 16 years after retirement, and you expect to earn 6.5 percent during those retirement years. How much do you need to set aside at the end of each year to accumulate the money necessary for your retirement? (Assume year-end cash flows.)

I will need this much at retirement _____________and will need to set aside ___________per year (at the end of each year.

Using the no growth perpetuity formula, assume that you can receive $19,000 per year forever and that your cost of money is 8%. What is this opportunity worth today?

The opportunity is worth _______________.

Using the constant growth perpetuity formula, assume that you will receive $19,000 at the end of the first year this cash flow will grow 4% annually forever after that. With a cost of money of 9 percent, what is this opportunity worth today?

The opportunity is worth _______________.

You start a business and expect the following cash flows

How much is this series of cash flows worth today if you can earn 8% elsewhere on investments with similar risk? __________

What would this series be worth is the risk was higher and the required return is 12% instead of 8%?   _____________

B Corporation has $1000 par value bonds with 7 years left to maturity, a stated annual coupon rate of 4.5 percent (with annual interest payments).

What are these bonds worth today if the required market rate of return is 6 percent? _________

What are these bonds worth today if the required market rate of return is 5 percent? __________

What are these bonds worth today if the required market rate of return is 3 percent? __________

What is the relationship between the coupon rate, changes in the market rate and the value of these bonds?

D Corporation has three bonds outstanding. All three have a coupon rate of 7 percent and a $1000 par value. The first bond has one year left to maturity. The second bond has 4 years left to maturity. The last bond has 8 years left to maturity. Assume for simplicity that the market rate for all three bonds is now 4 percent.

What is the value for the first bond with one year left to maturity? ___________

What is the value for the second bond with four years left to maturity? ______________

What is the value for the first bond with eight years left to maturity? ___________

Assuming the same stated interest rate, in an environment of increasing interest rates which bonds will decrease in value the most -- the one with a longer term (duration/maturity) or shorter term (duration/maturity)?

H Corporation has a bond outstanding. It has a coupon rate of 8 percent and a $1000 par value. The bond has 5 years left to maturity but could be called after three years for $1000 plus a call premium of $50. The bond is selling for $1060.

The yield to maturity on this bond is __________The yield to call on this bond is _________

Your colleague in a financial institution says that she has been tracking the movements
of the monthly returns of IBM and Yahoo stock returns. Using data on these returns over the last
10 years, she says that she has computed the COVARIANCE between these two returns series and
found that it is 0.00038. Since this COVARIANCE is so low and close to zero, she says that there
does not seem to be any linear association between the two return series.
You tell her that (choose one of the following)

(i) her reasoning is faulty because….. (must give reason)
(ii) her reasoning is correct because....(must give reason)

Write an app that works in both vertical and horizontal orientations. The app is a variety of the game of nim. Two players take turns removing identical objects from a set of objects. A player can remove one, two, or three objects at a time. The player who takes the last object loses. You can store the current number of objects in a TextView and get user input via an EditText. Include a Model. Generate randomly the starting number of objects, an integer between 10 and 20. The GUI should look nice in both orientations.

Practice Problems (Chapters 7 and 8)

Chapter 7       

1.         Which would you expect to be more variable: (a) the distribution of scores in a population or (b) the distribution of sample means based on random samples of 25 cases from this population. Explain.

2. Given a normal distribution of scores that has a mean of 50 and a standard deviation of 10, what is the probability of selecting a score that is greater than 65? If a random sample of 10 scores were selected from this population, what is the probability that the mean score for this sample would be greater than 65?

3. In a short paragraph, explain the logic of inferential statistics (The Hinkle et al. text refers to this as the chain of reasoning in inferential statistics).

4. What is the central limit theorem and what role does it play in inferential statistics?

Chapter 8       

5. Describe a study in which a one sample t-test is appropriate. Be sure to state your research question, hypotheses, significance level, critical value, etc.

6. List the steps in the hypothesis testing sequence.

7. In a short paragraph, explain Type I and Type II errors to an audience that has no previous experience with statistics.

8.         What is meant by statistical significance? Why does your author suggest that it may not always be adequate for purposes of research?

9.         Provide an example of the following: (a) A research problem appropriate for a non-directional test using the one-sample z-statistic. (b) A research problem appropriate for a directional test using the one-sample t-statistic.

10.       Consider the data in problem 11 in the text (page 199). Enter these data into SPSS and conduct a test of the null hypothesis.

sara is a 50-year-old woman who lives in a poor village in india. unfortunately, sara’s health ... Question: Sara is a 50-year-old woman who lives in a poor village in India. Unfortunately, Sara’s health ha... Sara is a 50-year-old woman who lives in a poor village in India. Unfortunately, Sara’s health has deteriorated in the last year. Her blood pressure and cholesterol are too high. She is sometimes short of breath. She has developed diabetes. She is currently dependent on a regular supply of insulin, which she picks up monthly at a government clinic. Although she is only 50, she has already suffered some of the circulatory complications of diabetes. Because of this, Sara had to spend the equivalent of $20 on health services and transportation, and missed 2 weeks of work, during which she lost another $20 of income. The total cost of this illness was about 10% of Sara’s annual earnings. There is a common perception that diabetes is a disease that affects only people in high-income countries. This, however, is not the case. Rather, the prevalence of diabetes is growing rapidly in low-income & middle-income countries. India now has the largest number of people with diabetes. The highest percentage of an adult population with the disease can be found here in which 31% of adults have diabetes. Identify the health determinants of the case study. Comment on the social, political and economic risk factors. Having identified these determinants, articulate what could be done in the short and long run to address them.

1. A wine company wanted to examine how Big-5 Personality Traits (openness to experience, agreeableness, conscientiousness, neuroticism, and extraversion) are related to salespersons’ performance. The company measured salespersons’ personality traits using 5-point Likert scales (e.g., 1-5) with higher values representing higher levels of the personality traits. The company used the number of bottles of wine sold in the last three months as a performance measure.

1. Independence Chi-square test
2. Correlation
3. One-way ANOVA
4. Multiple regression

1. The National Youth in Transition Database (NYTD) is a federally-mandated evaluation of the use of independent living services by foster youth in Wisconsin. University of Wisconsin conducted a baseline survey of youth in foster care at age 17 as well as a follow-up survey with these youth at age 21. In both surveys, participants were asked to indicate to what extent they valued diversity and inclusion (1 = not important at all, 5 = very important). A researcher identified the participants who attended colleges as a sample and examined whether their values on diversity and inclusion changed after attending colleges.

1. One-way ANOVA
2. Two paired sample mean comparison
3. Two-way ANOVA
4. Two independent sample mean comparison

1. The College of Business conducted a survey to investigate faculty members’ perceptions of diversity and inclusion. The participants were asked to indicated to what extent they were satisfied with the current diversity climate (1 = very dissatisfied, 5 = very satisfied). After collecting the data, the Dean wanted to know whether the diversity climate perceptions differed across five departments (Finance, Accounting, Marketing, Operations Management, and Management and Human Resources) and two types of faculty members (research faculty and teaching faculty).

1. Independence Chi-square test
2. One-way ANOVA
3. Two-way ANOVA
4. Two independent sample mean comparison

1. A consulting company used 115 engagement managers as a sample to examine whether participating in a leadership training program (0=non-participant 1= participant) was related to the promotion results (0= not promoted 1=promoted).

1. Independence Chi-square test
2. Two paired sample mean comparison
3. Two-way ANOVA
4. Simple regression

1. According to the October 2010 issue of Harvard Business Review, Best Buy has proven by holding other factors constant the value of a 0.1% increase in employee engagement at a particular store is $100K. This led Best Buy to hold employee engagement surveys on a quarterly basis as compared to annually. What method do you think Best Buy has used to help draw the conclusion?

1. Independence Chi-square test
2. One-way ANOVA
3. Regression
4. Correlation

1. As required by the Dodd-Frank financial reform act, publicly traded U.S. companies have started to disclose how the pay of their CEOs compares to the compensation of their median employees (the so-called "pay ratio"). A researcher collected the CEO-employee pay ratio data of 1,000 companies and wanted to examine whether the pay ratio was different across industries (e.g., finance, manufacturing, service, high-tech, etc.)

1. Two independent sample mean comparison
2. Two paired sample mean comparison
3. Two-way ANOVA
4. One-way ANOVA

1. A recent study examined whether using self-reflective job titles (e.g., Goddess of Greetings for an administrative assistant) can help reduce emotional exhaustion. The researchers conducted a field experiment to examine this research question. They first randomly assigned participants into a treatment group and a control group. The researchers gave a 30-minute intervention to teach participants in the treatment group how to create self-reflective job titles but not those in the control group. A month later, the researchers measured the emotional exhaustion of participants (on a Likert scale ranging from 1 to 7) in both groups and examined whether there was any mean difference in emotional exhaustion between the two groups.

1. Two independent sample mean comparison
2. Two paired sample mean comparison
3. Two-way ANOVA
4. Correlation

1. Nielsen is considered an exemplar company using data analytics to make people management decision making. To predict future attrition, Nielsen built a model with 20 employee variables like age, gender, tenure and manager rating (in scores) and used those variables to predict employees’ turnover intention (on a Likert scale 1 = very likely to quit, 5 = very likely to stay).

1. Simple regression
2. One-way ANOVA
3. Multiple regression
4. Correlation

1. A company used a job evaluation system to rate the values of 50 benchmarking job positions (in points). The company also collected the median market salary for each of the job positions. Eventually, the company wanted to establish a linear equation to predict how much should be paid to a job based on its value.

1. Independence Chi-square test
2. One-way ANOVA
3. Simple regression
4. Correlation

1. A research team measured a sample of employees’ preference for work-life balance (on a Likert scale ranging from 1 = not preferable at all to 5 = very preferable) and examined whether there was a generation difference in work-life balance preference (e.g., Gen Z, Millennials, Gen X, and Baby Boomers).

1. Independence Chi-square test
2. Two paired sample mean comparison
3. Two-way ANOVA
4. One-way ANOVA

The patient came to your exercise sessions 80% of the time during the 8 week period. Since she only needed to comply by 70%, she was granted the lap band surgery. After 12 weeks, she has lost 50 pounds and has eliminated her insulin and cholesterol medications but is still on the hypertension meds. Her knees also are starting to feel better. You meet with this person post-surgery for an exercise assessment and the post surgery program. This time, she is very resistant to your exercise advice. In fact, she has no interest in participating in your exercise program anymore.

What might this patient need to progress to the action stage? To answer this, describe how you would approach the patient through each stage leading to ACTION.