Covered Interest Arbitrage in Both Directions.

1) The one‑year interest rate in New Zealand is 4 percent. The one‑year U.S. interest rate is 5.5 percent. The spot rate of the New Zealand dollar (NZ$) is $.60. The forward rate of the New Zealand dollar is $.615. Is covered interest arbitrage feasible for U.S. investors? Is it feasible for New Zealand investors? In each case, explain why covered interest arbitrage is or is not feasible.

1. An investor holds a portfolio which is expected to yield a rate of return of 18% with a standard deviation of 2.5%. The investor is considering buying a new share (investment being 5% of the total investment in the new portfolio). The share has the following distribution of return:

The correction coefficient between the new portfolio and the new security is 0.3; calculate the portfolio return and standard deviation of the portfolio.                                       [10 marks]

When new technologies arrive, only a few customers adopt such technologies. A large number of customer remain sceptical about the product. The cost of the new technology remain high. As a result it take long time for the businesses to focus on the new technology until the dominant design comes and the price become affordable by the large number of consumers. From your point of view, what might be the reasons established firms might resist adopting a new technology.

When new technologies arrive, only a few customers adopt such technologies. A large number of customer remain sceptical about the product. The cost of the new technology remain high. As a result it take long time for the businesses to focus on the new technology until the dominant design comes and the price become affordable by the large number of consumers. From your point of view, what might be the reasons established firms might resist adopting a new technology.

When new technologies arrive, only a few customers adopt such technologies. A large number of customer remain sceptical about the product. The cost of the new technology remain high. As a result it take long time for the businesses to focus on the new technology until the dominant design comes and the price become affordable by the large number of consumers. From your point of view, what might be the reasons established firms might resist adopting a new technology..

 What is displayed to the screen when the following code executes?

Counter c1 = new Counter();
Counter c2 = new Counter();
Counter c3 = new Counter();
Counter[] A = {c1, c2};
JAVA

A[0].clickButton();
Counter[] B = new Counter[2];
for(int i = 0; i < A.length; i++)
    B[i] = A[i];
B[0] = c3;
System.out.println("A[0] is " + A[0].getCount());
System.out.println("B[0] is " + B[0].getCount());

Nuke-A-Bird, Inc. sells frozen chicken meals. The company needs to purchase some new freezers for storing inventory. If the freezers are purchased, they will replace old freezers purchased 10 years ago for $105,000, and these are being depreciated on a straight line basis to a zero book value (15-year depreciable life). The old freezers can be sold for $60,000 today, and $2,000 in 5 years. The new freezers will cost $200,000 installed and will be depreciated on a straight-line basis to a book value of 0. The new freezers will have a salvage value of $25,000 at the end of the 5th year. The firm expects to increase its pre-tax revenues by $50,000 per year if the new freezers are purchased, but cash expenses will also increase by $6,000 because the new freezers require greater electrical expense. If the firm's cost of capital is 10 percent and its tax rate on income and capital gains is 34%, what is the NPV of the new freezers? a) What is the after-tax SV of the new machine in 5-years? b) What is the after-tax SV of the old machine today? In 5-years? c) What is the annual difference in the FCFF from the new project? d) Should the old ones be replaced?

Case:

Hedley Valley has been facing long periods of drought which is reducing wheat production. The town depend very much on farming. Wheat is also exported.

The Headley Valley Water Control Board will undertake an irrigation project which will provide 100 million litres of water annually to 200 wheat farms of 150 hectares each to address the problem. The Board will charge $0.05 per litre for the water, which will be distributed equally among the 200 farms.

It is estimated that land rent in Hedley Valley will rise by $60 per hectare per year. 30 farm labourers will be attracted to work at Headley Valley farms from the vineyards of nearby Sunshine Valley, at a minimum wage of $10 per hour. The market wage for the nearby province is $8 per hour. Production of wheat on Headley Valley farms is expected to increase by 2% every year. Currently production of wheat in Headley Valley is 2,000 kg/ha. Yield is expected to double after the implementation of the irrigation project.

1.2: With the information above and any additional information you can find and your own reasonable assumptions, undertake a rough cost-benefit analysis

1.2.1: How will you quantify and monetize all your identified (10)

a. Costs

b. Benefits

c. What time frame will you use and why?

1.2.2: With a spreadsheet estimate (30)

a. The Present Value Cost – Economic

b. The present Value Benefits – Economic

c. Discuss any qualitative costs and benefits

1.2.3: With the following criteria, determine whether the project is economically feasible (10)

a. Net Present Value Criteria

b. Benefit-Cost Ratio

Thank you.

1. In a sample of 350 students selected from a large college of business, 25% are found to be marketing majors. The 25% is a statistic.

True                 False

2. Lily has been keeping track of what she spends to eat out. The last week's expenditures for meals eaten out were $5.69, $5.95, $6.19, $10.91, $7.49, $14.53, and $7.66. What is the mean amount Lily spends on meals?

__________________

3. Monthly rent in dollars for a sample of 10 stores in a small town in South Dakota are as follows: 220, 216, 220, 205, 210, 240, 195, 235, 204, and 250. What is the sample mean?

__________________

4. Suppose that a firm's sales were $2,500,000 four years ago, and sales have grown annually by 25%, 15%, -5%, and 10% since that time. What was the geometric mean growth rate in sales over the past four years?

                                                                                                __________________

5. The data set 10, 20, 30 has the same variance as the data set 100, 200, 300.

True                 False

6. The values for a sample taken from a particular population are listed below. Calculate the standard deviation for the sample values.

9     14     18     21

                                                __________________

7. A basketball player has the following points for seven games: 20, 25, 32, 18, 19, 22, and 30. Compute the coefficient of variation.

__________________

8. According to the Empirical Rule, if the data form a bell shaped normal distribution, approximately ________ % of the observations will be contained within two standard deviations.

9. In a bell-shaped distribution, there is no difference in the values of the mean, median, and mode.

True                 False

10.A data sample has a mean of 107, a median of 122, and a mode of 134. The distribution of the data is positively skewed.

True                 False

MSI is considering eliminating a product from its ToddleTown Tours collection. This collection is aimed at children one to three years of age and includes “tours” of a hypothetical town. Two products, The Pet Store Parade and The Grocery Getaway, have impressive sales. However, sales for the third CD in the collection, The Post Office Polka, have lagged the others. Several other CDs are planned for this collection, but none is ready for production.

MSI’s information related to the ToddleTown Tours collection follows:

      
*Allocated based on total sales dollars.

MSI has determined that elimination of the Post Office Polka (POP) program would not impact sales of the other two items. The remaining fixed overhead currently allocated to the POP product would be redistributed to the remaining two products.

Required:
1. Calculate the incremental effect on profit if the POP product is eliminated.



2. Should MSI drop the POP product?

3-a. Calculate the incremental effect on profit if the POP product is eliminated. Suppose that $2,000 of the common fixed costs could be avoided if the POP product line were eliminated.



3-b. Should MSI drop the POP product?