27. In a perfectly competitive market,
A) firms can freely enter and exit.
B) firms sell a differentiated product.
C) transaction costs are high.
D) All of the above.

28. The "Got Milk?" advertising campaign is a good example of
A) advertising in a competitive market.
B) how advertising in a competitive market does not pay off for a single firm.
C) interest groups financed by the industry advertise for the whole industry.
D) All of the above.

29. A bike builder owns a bike shop earns $18,000 in revenue weekly. She pays $8,000 as
explicit costs and owns the shop so no rent is paid. The bike builder could work for other bike
shop and earn $10,000 per week. Her business profit is ________ and her economic profit is
________.
A) $10,000, $10,000
B) $28,000, $10,000
C) $10,000, $0
D) $8,000, $0

30. If the company E-bikes R US is producing at a level where losses are minimized, the
company
A) has no incentive to stay in the industry.
B) is better of exiting the industry.
C) is maximizing profits.
D) will shut down.

31. Suppose the company E-bikes R US produces bike seats and has an estimated fixed cost
of $7,000 and not sunk. The estimated variable cost for each bike seat is $20. The market
price for a bike seat is $25 each and the owner can sell 1000 bike seats at most each year. In
the long run, the owner
A) should shut down.
B) should keep operating.
C) should sell less.
D) None of the above.

**Not sure I have medical expenses and credits correct **

Reba Dixon is a fifth-grade school teacher who earned a salary of $38,300 in 2018. She is 45 years old and has been divorced for four years. She receives $1,260 of alimony payments each month from her former husband (divorced in 2016). Reba also rents out a small apartment building. This year Reba received $50,000 of rental payments from tenants and she incurred $19,500 of expenses associated with the rental.

Reba and her daughter Heather (20 years old at the end of the year) moved to Georgia in January of this year. Reba provides more than one-half of Heather’s support. They had been living in Colorado for the past 15 years, but ever since her divorce, Reba has been wanting to move back to Georgia to be closer to her family. Luckily, last December, a teaching position opened up and Reba and Heather decided to make the move. Reba paid a moving company $2,130 to move their personal belongings, and she and Heather spent two days driving the 1,450 miles to Georgia.

Reba rented a home in Georgia. Heather decided to continue living at home with her mom, but she started attending school full-time in January at a nearby university. She was awarded a $3,120 partial tuition scholarship this year, and Reba helped out by paying the remaining $500 tuition cost. If possible, Reba thought it would be best to claim the education credit for these expenses. Reba wasn't sure if she would have enough items to help her benefit from itemizing on her tax return. However, she kept track of several expenses this year that she thought might qualify if she was able to itemize. Reba paid $5,920 in state income taxes and $12,620 in charitable contributions during the year. She also paid the following medical-related expenses for herself and Heather:

Insurance premiums $ 5,915

Medical care expenses $ 1,220

Prescription medicine $ 470

Nonprescription medicine $ 220

New contact lenses for Heather $ 320

Shortly after the move, Reba got distracted while driving and she ran into a street sign. The accident caused $1,020 in damage to the car and gave her whiplash. Because the repairs were less than her insurance deductible, she paid the entire cost of the repairs. Reba wasn’t able to work for two months after the accident. Fortunately, she received $2,120 from her disability insurance. Her employer, the Central Georgia School District, paid 60% of the premiums on the policy as a nontaxable fringe benefit and Reba paid the remaining 40% portion.

A few years ago, Reba acquired several investments with her portion of the divorce settlement. This year she reported the following income from her investments: $2,320 of interest income from corporate bonds and $1,620 interest income from the City of Denver municipal bonds. Overall, Reba’s stock portfolio appreciated by $12,120 but she did not sell any of her stocks.

Heather reported $6,440 of interest income from corporate bonds she received as gifts from her father over the last several years. This was Heather’s only source of income for the year.

Reba had $10,000 of federal income taxes withheld by her employer. Heather made $1,000 of estimated tax payments during the year. Reba did not make any estimated payments. Reba had qualifying insurance for purposes of the Affordable Care Act (ACA).

a. Determine Reba’s federal income taxes due or taxes payable for the current year.

My calculations:

Gross income: 38,300+15,120+50,000+1,272+2,320 = 107,012 - Rental expense:19,500 = 87,512 AGI

Itemized deduction: medical 0 + state 5920 + charitable 12620 = 18,540> Standard deduction: HOH 18,000

Taxable income: 68,972 (87,512 - 18,540)

Tax on taxable income: 9,722 ([68,972-51,800 x 22%] +5,944)

Credits: 6,600 (AOC: 500 + QBI: 6100)

Tax prepayments: 10,000

Tax Refund: 6,878

**Not sure I have medical expenses and credits correct **

Medical expenses total: $4276? (Gross Income 87,512 X 7.5% = 6563) so zero is deductible? ([5915 x 40%]+1120+470+320)=4276

Credits: AOC credit of $500, should it include QBI? QBI credit would be $6,100? (30,500 x 20%=6,100) so can take the full QBI because [(AGI: 87,512 - itemized ded: 18,540 = 68,972, taxable income) x 20%=13,758]

BL lives in the US and has $800,000 surplus funds that he wants to invest for one year in any currency. He receives the following quotes from a commercial bank:

Spot rate= 1 British Pound: $50-55

One-year forward rate= 1 British Pound: $58-64

One-year US interest rate= 6%

One year UK interest rate= 1%

(i) With supporting calculations, advise BL whether covered interest arbitrage is worthwhile.

(ii) Would your advice differ, if transaction costs in respect of the covered interest arbitrage amount to $5,000?

(iii) Using the interest rate parity model, calculate the interest differential between the two countries.

BL lives in the US and has $800,000 surplus funds that he wants to invest for one year in any currency. He receives the following quotes from a commercial bank:

Spot rate= 1 British Pound: $50-55

One-year forward rate= 1 British Pound: $58-64

One-year US interest rate= 6%

One year UK interest rate= 1%

(i) With supporting calculations, advise BL whether covered interest arbitrage is worthwhile.

(ii) Would your advice differ, if transaction costs in respect of the covered interest arbitrage amount to $5,000?

(iii) Using the interest rate parity model, calculate the interest differential between the two countries.

13. Current prices for US Treasury, zero-coupon bonds (each with face values of $1000), are as follows:

• A 6-month zero coupon is currently selling for $986.3.
• A 12-month zero coupon is currently selling for $965.38.
• An 18-month zero coupon is currently selling for $941.1.
• A 24-month zero coupon is currently selling for $912.07.

All YTM’s come from US Treasury, zero-coupon bonds.

Determine the YTM for each bond, and then plot as much of the yield curve as you can.

After you finish constructing the yield curve, report the YTM (as an effective annual rate) for the 18-month zero-coupon bond.

Express your answer as a decimal, not as a percent, using at least four significant digits.

Oil is an example of a commodity, which is something of value that is traded in bulk in global markets. Other examples are gold, coal, natural gas, grain, etc. Commodity prices are the result of buyers and sellers interacting in highly competitive and dynamic markets. The article below shows trends in recent history for the price and quantity of oil being traded in the world markets. Each dot represents an equilibrium at a point in time. What are some factors that affect the demand and supply of oil? How would changes in demand and supply get us from one equilibrium to the next? https://www.nytimes.com/interactive/2015/09/30/business/how-the-us-and-opec-drive-oil-prices.html (Links to an external site.)Links to an external site.

This is an interesting measure and takes time to digest. In France, for example, this is a very high number and taxes are high as a result. At the same time, there are many services like education, and healthcare that are paid for as part of this. We understand this concept when it comes to our cell phone, but in the US we have an immediate negative response to taxes. Imagine if you will your taxes go from 10,000 to 15,000 but you get free healthcare and college (which costs you more than 5,000 per year now). In the US, this type of tax increase is not tolerable by many, and at the same time it can raise the standard of living for many.

Why is bundling OK for cell phone but not taxes? Should expenditure per capita be lowered or raised to improve society?

If the current 1-year risk free rate in US is 6%, the current 1-year risk free rate in Switzerland (currency symbol: CHF) is 9%, and the current spot rate between USD and CHF is CHF 1.2550/USD.

(1) If interest rate parity holds, what should be the appropriate one year forward rate?   

(2) You find out the actual quote from your bank on the one year forward contract is CHF 1.2850 /USD, what would be your covered interest arbitrage profits if you can borrow USD $1,000,000 in US at the risk free rate? To get full credits, you need to include step by step instructions on how to carry out this strategy.

If the current 1-year risk free rate in US is 6%, the current 1-year risk free rate in Switzerland (currency symbol: CHF) is 9%, and the current spot rate between USD and CHF is CHF 1.2550/USD.

(1) If interest rate parity holds, what should be the appropriate one year forward rate?   

(2) You find out the actual quote from your bank on the one year forward contract is CHF 1.2850 /USD, what would be your covered interest arbitrage profits if you can borrow USD $1,000,000 in US at the risk free rate? To get full credits, you need to include step by step instructions on how to carry out this strategy.