At a retail​ store, the spending amount per transaction follows normal distribution with mu=50 and sigma=4​,and given you select a sample of 100​ transactions.

a. What is the standard error or the standard deviation for the sample​ mean?

b. What is the probability that sample mean (xbar) is less than $49?

c What is the probability that sample mean (xbar)is between $49 and $50.5?

d. What is the probability that sample mean (xbar) is above $50.1?

e. There is a 35% chance that sample mean (xbar) is above what value?

q13. Reducing tax rates encourages ________ according to supply side economists.

• businesses to increase investment spending
• people to enjoy more time off
• consumers to spend less

q14. An example of a progressive tax would be

• an income tax with a 10% tax rate on low income households and 20-30% tax rates on higher income households.
• a Social Security tax rate of 5% on earned income below $100,000 and 0% on income earned above $100,000.
• the Medicare payroll tax of 2.9% of income for everyone, regardless of how much they earn.

q15. An argument to promote education is that it will

• create jobs for teachers
• increase labor productivity and economic growth in the long run
• increase capital accumulation or deepening in the economy

Bank of America's Consumer Spending Survey collected data on annual credit card charges in seven different categories of expenditures: transportation, groceries, dining out, household expenses, home furnishings, apparel, and entertainment (U.S. Airways Attache, December 2003). Using data from a sample of 42 credit card accounts, assume that each account was used to identify the annual credit card charges for groceries (population 1) and the annual credit card charges for dining out (population 2). Using the difference data, the sample mean difference was    = $852, and the sample standard deviation was s_d= $1,143.

1. Formulate the null and alternative hypotheses to test for no difference between the population mean credit card charges for groceries and the population mean credit card charges for dining out.
   H₀:  _d Selectgreater than or equal to 0greater than 0less than or equal to 0less than 0equal to 0not equal to 0Item 1
   H_a:  _d Selectgreater than or equal to 0greater than 0less than or equal to 0less than 0equal to 0not equal to 0Item 2
   
2. Use a .05 level of significance. What is the p-value?
   The p-value is Selectless than .01between .01 and .02between .02 and .05between .05 and .10between .10 and .20between .20 and .40greater than .40Item 3
   
   Can you conclude that the population means differ?
   SelectThere is a difference between the annual mean expendituresCannot conclude there is a difference between the annual mean expendituresItem 4
   
3. Which category, groceries or dining out, has a higher population mean annual credit card charge?
   SelectGroceriesDining outItem 5
   
   What is the point estimate of the difference between the population means?
   $  
   
   What is the 95% confidence interval estimate of the difference between the population means (to the nearest whole number)?
   (  ,   )

Bank of America's Consumer Spending Survey collected data on annual credit card charges in seven different categories of expenditures: transportation, groceries, dining out, household expenses, home furnishings, apparel, and entertainment (U.S. Airways Attache, December 2003). Using data from a sample of 42 credit card accounts, assume that each account was used to identify the annual credit card charges for groceries (population 1) and the annual credit card charges for dining out (population 2). Using the difference data, the sample mean difference was    = $888, and the sample standard deviation was s_d= $1,143.

1. Formulate the null and alternative hypotheses to test for no difference between the population mean credit card charges for groceries and the population mean credit card charges for dining out.
   H₀: mu_d Selectgreater than or equal to 0greater than 0less than or equal to 0less than 0equal to 0not equal to 0Item 1
   H_a: mu_d Selectgreater than or equal to 0greater than 0less than or equal to 0less than 0equal to 0not equal to 0Item 2
   
2. Use a .05 level of significance. What is the p-value?
   The p-value is Selectless than .01between .01 and .02between .02 and .05between .05 and .10between .10 and .20between .20 and .40greater than .40Item 3
   
   Can you conclude that the population means differ?
   SelectThere is a difference between the annual mean expendituresCannot conclude there is a difference between the annual mean expendituresItem 4
   
3. Which category, groceries or dining out, has a higher population mean annual credit card charge?
   SelectGroceriesDining outItem 5
   
   What is the point estimate of the difference between the population means?
   $
   
   What is the 95% confidence interval estimate of the difference between the population means (to the nearest whole number)?
   (  ,  )

(11) The real return objective of Mr. Morison’s should reflect the 6.25% spending rate, 1.75% inflation rate and 40 base point cost of earning investment return. Estimate his total return.

            (a) 14.99%

            (b) 9.11%

            (c) 13.02%

(d) 08.54%

Answer questions 10-14 following this information. Mean -variance investor risk aversion (RA) level is 2. The expected return and standard deviation of three assets classes are as bellow,

Assets Class              Expected Return          Standard deviation of return

A                              10%                          25%

B                                8%                         15%

C                                6%                         12%

risk- free rate of return is 3% and the short fall level is 5% select the investors.

(12) Risk adjusted rate of return (Expected utility) is,

            A. 7.98%, 5.97% and 9.94%

            B. 5.97%, 9.94% and 7.98%

            C. 9.94%, 7.98% and 5.97%

            D. none of the above

(13) Sharp (Reward volatility) Ratio is,

            A. 0.33, 0.22 and 0.28

            B. 0.28, 0.33 and0.25

            C. 0.22,0.28 and 0.33

            D. none of the above

(14) Safety-First Ratio is,

            A. 0.083,0.20 and 0.20

            B. 0.20, 0.20 and 0.083

            C. 0.20, 0.083 and 0.20

            D. none of the above

(15) the best asset class is

            A. A

            B. B

            C. C

            D. none of the above

(16)      You purchased a share of stock for $65. One year later you received $2.37 as a     dividend and sold the share for $63. What was your holding-period return?

     A.   0.57%

     B.   -0.2550%

     C.   -0.89%

     D.   1.63%

     E.   none of the options

(17)      You have been given this probability distribution for the holding-period return for

         GM stock:

What is the expected standard deviation for GM stock?

     A.   16.91%

     B.   16.13%

     C.   13.79%

     D.   15.25%

     E.   14.87%

     F.    09.80%

(18) Consider a T-bill with a rate of return of 5% and the following risky securities:

   Security A: E(r) = 0.15; Variance = 0.04
   Security B: E(r) = 0.10; Variance = 0.0225
   Security C: E(r) = 0.12; Variance = 0.01
   Security D: E(r) = 0.13; Variance = 0.0625

From which set of portfolios, formed with the T-bill and any one of the four risky securities, would a risk-averse investor always choose his portfolio?

     A.   The set of portfolios formed with the T-bill and security A.

     B.   The set of portfolios formed with the T-bill and security B.

     C.   The set of portfolios formed with the T-bill and security C.

     D.   The set of portfolios formed with the T-bill and security D.

     E.   Cannot be determined.

(19) As the number of securities in a portfolio is increased, what happens to the average

    portfolio standard deviation?

     A.   It increases at an increasing rate.

     B.   It increases at a decreasing rate.

     C.   It decreases at an increasing rate.

     D.   It decreases at a decreasing rate.

     E.   It first decreases, then starts to increase as more securities are added.

(20)     An investor has invested in a portfolio of fixed income and equity securities

         which has a current market value of $500,000. This portfolio has an expected

          return of 14% with an associated standard deviation of 24%. The investor is

         expected to inherit $500,000 soon. He is currently evaluating the following four

         index funds as possible investment opportunities to invest this money:

The investor has two objectives: (i) increase or maintain the current expected return and (ii) reduce or maintain the current risk.

Which fund would you recommend to this investor? Explain why. (No calculations are required.)

1. fund A
2. fund B
3. fund C
4. fund D

• Consumer spending during holiday seasons affects the aggregate demand (AD) in the economy. AD drastically declines during serious recessions. In 1939, with the U.S. economy not yet fully recovered from the Great Depression, President Roosevelt proclaimed that Thanksgiving would fall a week earlier than usual so that the shopping period before Christmas would be longer. Explain what President Roosevelt might have been trying to achieve, using the model of aggregate demand and aggregate supply. Was the policy effective to increase AD?

Bank of America's Consumer Spending Survey collected data on annual credit card charges in seven different categories of expenditures: transportation, groceries, dining out, household expenses, home furnishings, apparel, and entertainment. Using data from a sample of 42 credit card accounts, assume that each account was used to identify the annual credit card charges for groceries (population 1) and the annual credit card charges for dining out (population 2). Using the difference data, the sample mean difference was d=$850, and the sample standard deviation was s = $1123.

a. Formulate the null and alternative hypotheses to test for no difference between the population mean credit card charges for groceries and the population mean credit card charges for dining out.

b. Use .05 level of significance. Can you conclude that the population means differ?

What is the p-value? (to 6 decimals)

c. Which category, groceries or dining out, has a higher population mean annual credit card charge? a. Groceries b. dining out

What is the point estimate of the difference between the population means? Round to the nearest whole number. What is the 95% confidence interval estimate of the difference between the population means? Round to the nearest whole number.

Bank of America's Consumer Spending Survey collected data on annual credit card charges in seven different categories of expenditures: transportation, groceries, dining out, household expenses, home furnishings, apparel, and entertainment. Using data from a sample of 42 credit card accounts, assume that each account was used to identify the annual credit card charges for groceries (population 1) and the annual credit card charges for dining out (population 2). Using the difference data, the sample mean difference was d= $850, and the sample standard deviation was $1123. a. Formulate the null and alternative hypotheses to test for no difference between the population mean credit card charges for groceries and the population mean credit card charges for dining out. b. Use .05 level of significance. Can you conclude that the population means differ? What is the p -value? (to 6 decimals) c. Which category, groceries or dining out, has a higher population mean annual credit card charge? What is the point estimate of the difference between the population means? Round to the nearest whole number. 850 What is the 95% confidence interval estimate of the difference between the population means? Round to the nearest whole number. (n1,n2)=

Maria Suarez returned to her office afteer spending the afternoon meeting with her firm's investment bankers. Suarez was CFO of MidCo Ind., a mid-sized manufacturing firm, and she was taking a hard look at its capital structure and payment policy. Bonita felt that MedCo was underlevered and potentially not taking full advantage of the tax benefits of debt. Further complicating matters, MidCo's institutional investors had been clamoring for either a repurchase or a special dividend. One possibility floated by her investment bankers was a "leveraged recap", in which MidCO would issue debt and use the proceeds to repurchase shares. MidCo Industries has 20 milion shares outstanding with a markket price of $15 per share and no debt. The firm had consistenly stable earnings and pays a 35% tax rate. MidCo's investment bankers proposed that the fimr borrow $100 million on a permanent basis throulgh leveraged recap in which it would use the borrowed funds to repurchase outstanding shares. As Suarez sat down at her desk, she stared at her notepad. She had written down several questions that she would need to answer befoore making her decision.

1. What are the tax consequences of the recap?

2. Based only on the tax effects and the Valuation Principle, what will be the total value of the firm after the recap?

a. How much of the new value will be euity?

b. How much will be debt?

3. At what price should MidCo be able to repurchase its shares?

4. Who benefits from the recap? Who loses?

5. What other costs or benefits of the additional leverage should MidCo's managers consider?

6. If MidCo's managers decide to issue the debt and distribute the tax shield as a special dividend instead of repurchasing shares, what will the dividend per share be?

Consumer spending (C) is often a leading indicator of future short-run output (Y): It’s a “forward looking” variable.

a. How does Real Business Cycle Theory explain this fact?

b. In this theory, does current C cause Y? If so, how? If not, why not?

c. How does Keynesian Business Cycle Theory explain this fact?

d. In this theory, does current C cause Y? If so, how? If not, why not?