Question 4

The following is a Binomial Option Pricing Model question. There will be 7 questions asked about it. Since the order of questions chosen is random, I suggest you solve the following all at once and choose your answer to each part as it comes up.

You will be asked the following questions:

1. What are the values of the calls at maturity, t=2?

2. What are the values of the calls at t =1?

3. What is the initial (t = 0) fair market price of the call?

4. What is the initial (t = 0) hedge ratio?

5. What are the hedge ratios at t = 1?

6. If one call was written initially, what is the value of the hedged portfolio one period later (t = 1)?

7. If the stock moves down in period 1 how would you adjust your t = 0 hedge by trading only stock?

We have a 2-state, 2-period world (i.e. t = 0, 1, 2). The current stock price is 100 and the risk-free rate each period is 5%. Each period the stock can either go up by 10% or down by 10%. A European call option on this stock with an exercise price of 90 expires at the end of the second period.

What are the values of the calls at t =1? (closest answer)

The following is a Binomial Option Pricing Model question. There will be 7 questions asked about it. Since the order of questions chosen is random, I suggest you solve the following all at once and choose your answer to each part as it comes up.

You will be asked the following questions:

1. What are the values of the calls at maturity, t=2?

2. What are the values of the calls at t =1?

3. What is the initial (t = 0) fair market price of the call?

4. What is the initial (t = 0) hedge ratio?

5. What are the hedge ratios at t = 1?

6. If one call was written initially, what is the value of the hedged portfolio one period later (t = 1)?

7. If the stock moves down in period 1 how would you adjust your t = 0 hedge by trading only stock?

We have a 2-state, 2-period world (i.e. t = 0, 1, 2). The current stock price is 100 and the risk-free rate each period is 5%. Each period the stock can either go up by 10% or down by 10%. A European call option on this stock with an exercise price of 90 expires at the end of the second period.

If one call was written initially, what is the value of the hedged portfolio one period later (t = 1)? (closest answer)

CNY Coffee Inc. uses three types of coffee beans (Columbia, Java, and Brazil) as mixtures to manufacture its two coffee products (Energy, and Everyday). The cost per pound, the availability, and rating information of the coffee beans are as follows.

Coffee product tests are used to provide ratings on a scale of 0-100, with higher ratings indicating higher product performance. Here are the two coffee products and their product information:

Due to the popular demand of the low-price segment, at least 920 pounds of Everyday must be produced.

Set up and list the linear programming model for the above problem. (You do not need to solve the listed model).

On June 30, 2021, Singleton Computers issued 4% stated rate bonds with a face amount of $100 million. The bonds mature on June 30, 2036 (15 years). The market rate of interest for similar bond issues was 5% (2.5% semiannual rate). Interest is paid semiannually (2.0%) on June 30 and December 31, beginning on December 31, 2021. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
1. Determine the price of the bonds on June 30, 2021.
2. Calculate the interest expense Singleton reports in 2021 for these bonds using the effective interest method.

• Required 1
• Required 2

Determine the price of the bonds on June 30, 2021. (Enter your answers in whole dollars. Round percentage answers to one decimal place. Round your final answers to nearest whole dollar amount.)

Calculate the interest expense Singleton reports in 2021 for these bonds using the effective interest method. (Enter your answers in whole dollars. Round your final answers to nearest whole dollar amount.)

he Chromosome Manufacturing Company produces two products, X and Y. The company president, Jean Mutation, is concerned about the fierce competition in the market for product X. She notes that competitors are selling X for a price well below Chromosome's price of $12.70. At the same time, she notes that competitors are pricing product Y almost twice as high as Chromosome's price of $12.50. Product X Product Y Number of Units 11,000 3,000 Direct materials cost per unit $3.23 $3.09 Direct labor cost per unit $2.22 $2.10 Direct labor hours 10,000 2,500 Machine hours 2,100 2,800 Inspection hours 80 100 Purchase orders 10 30 Ms. Mutation has learned that overhead costs are assigned to products on the basis of direct labor hours. The overhead costs for this time period consisted of the following items: Ms. Mutation has obtained the following data for a recent time period: Overhead Cost Item Amount Inspection costs $16,200 Purchasing costs $8,000 Machine costs $49,000 Total $73,200

Using Direct labor Hours to allocate overhead costs determine the gross margin per unit for Product X Using ABC for overhead allocation, determine the gross margin per unit for Product Y.

4A. When the price of normal good N increases, the amount of N consumed decreases. The part of the decrease in N consumption due to an increase in the relative price of N is

a the marginal rate of substitution

b the income effect.

c marginal utility.

d the substitution effect.

e the network externality effect.

4B Which of the following statements about a Giffen good is false?

A For a Giffen good, the income effect dominates the substitution effect.

B Researchers have found that quinine water is a Giffen good for rats.

C A Giffen good is an inferior good.

D For a Giffen good, the income effect and the substitution effect work in opposite directions.

E A Giffen good has a negatively sloped demand curve.

4C Floyd prefers pizza to hamburgers; he prefers hamburgers to tacos; and he prefers pizza to tacos. In addition, he prefers eating less tacos than eating more tacos. Based on the information provided, which assumption(s) is satisfied by Floyd?

A Desirability and Transitivity.

B Transitivity only.

c Desirability only.

D Neither Desirability nor Transitivity.

4D. As the price of good X increases from $10 to $16, the quantity demanded falls from 100 to 80. Based upon this information, we can conclude that the demand for X is

A positively sloped.

B of unitary elasticity.

C inelastic.

D elastic.

K Co. is a publicly listed company involved in the production of highly technical and sophisticated electronic components for complex machinery. It has a number of diverse and popular products, an active research and development department, significant cash reserves and a highly talented management who are very good in getting products to market quickly.

A new industry that K Co. is looking to venture into is biotechnology, which has been expanding rapidly and there are strong indications that this recent growth is set to continue. However, K Co. has limited experience in this industry. Therefore, it believes that the best and quickest way to expand would be through acquiring a company already operating in this industry sector.

Discussions taken place about the possibility of acquiring Tee Co. being acquired by K Co. Price of Tee company in stock market during last one year are as follows.

Price at the end of month

1. Calculate average return for both stock and market
2. Calculate Standard deviation for both
3. Calculate coefficient of variation for both
4. Calculate Beta of stock
5. Suggest what you understand from Beta

K Co. is a publicly listed company involved in the production of highly technical and sophisticated electronic components for complex machinery. It has a number of diverse and popular products, an active research and development department, significant cash reserves and a highly talented management who are very good in getting products to market quickly.

A new industry that K Co. is looking to venture into is biotechnology, which has been expanding rapidly and there are strong indications that this recent growth is set to continue. However, K Co. has limited experience in this industry. Therefore, it believes that the best and quickest way to expand would be through acquiring a company already operating in this industry sector.

Discussions taken place about the possibility of acquiring Tee Co. being acquired by K Co. Price of Tee company in stock market during last one year are as follows.

Price at the end of month

1. Calculate average return for both stock and market
2. Calculate Standard deviation for both
3. Calculate coefficient of variation for both
4. Calculate Beta of stock
5. Suggest what you understand from Beta

2) The following table gives the price (in dollars), weight (in pounds), amps, and maximum cutting depth (in inches) for a collection of 19 circular saws.

a) Make a prediction about the impact of each independent variable on the dependent variable. b) Use graphical summaries to examine the relationship between each pair of variables. What do you see? Are there any unusual observations or outliers? Does the data support your predictions? c) Write the regression equation. d) Estimate the regression model. Interpret the estimated coefficients. e) Predict the price of a circular saw that weighs 10 pounds, uses 12 amps of current, and has a maximum cutting depth of 2.5 inches. f) Describe the fit of the model.

Broadway Company produces and sells two models of calculators. The following monthly data are provided:

Total monthly fixed costs are expected to be $15,000. What is the break-even point in sales dollars at the expected sales mix? (Do not round your intermediate calculations.)

$19,231

$43,478

$68,182

$64,286

When drawing a cost-volume-profit graph, how are the axes labeled?

The horizontal axis would be labeled with dollars (of cost or revenue), while the vertical axis would be labeled with number of units (volume or activity).

The horizontal axis would be labeled with dollars (of total fixed costs), while the vertical axis would be labeled with dollars (of total variable costs).

The horizontal axis would be labeled with number of units (volume or activity), while the vertical axis would be labeled with dollars (of cost or revenue).

None of these answers is correct.

When performing sensitivity analysis, which of the following is an example of a variable that management may consider changing to answer "what if" questions?

Variable cost per unit

Sales price per unit

Fixed cost per unit

Both Variable cost per unit and Sales price per unit are correct.