a) Expected Returns: Stock A: John's model = 1.6%, CAPM = 32%,Stock B: John's model = 4.8%, CAPM = 30%,Stock C: John's model = 1.4%, CAPM = 20%, Stock D: John's model = 0.8%, CAPM = 10%
b) Abnormal Returns: Stock A: John's model = 30.4%, CAPM = 0%,Stock B: John's model = 27.2%, CAPM = 2%,Stock C: John's model = 22.6%, CAPM = 4%, Stock D: John's model = 11.2%, CAPM = 2%
a. Given:
Risk-free rate (RF) = 4%
Market return (RM) = 20%
Using John's model:
Expected Return according to John's model = Zen * RM
For each stock:
Stock A:
Expected Return according to John's model = 0.08 * 20% = 1.6%
Stock B:
Expected Return according to John's model = 0.24 * 20% = 4.8%
Stock C:
Expected Return according to John's model = 0.07 * 20% = 1.4%
Stock D:
Expected Return according to John's model = 0.04 * 20% = 0.8%
Stock E:
Expected Return according to John's model = 0.03 * 20% = 0.6%
Using the CAPM(capital asset pricing model):
Expected Return according to CAPM = RF + Beta * (RM - RF)
For each stock:
Stock A:
Expected Return according to CAPM = 4% + 2.00 * (20% - 4%) = 32%
Stock B:
Expected Return according to CAPM = 4% + 1.75 * (20% - 4%) = 30%
Stock C:
Expected Return according to CAPM = 4% + 1.20 * (20% - 4%) = 20%
Stock D:
Expected Return according to CAPM = 4% + 0.50 * (20% - 4%) = 10%
Stock E:
Expected Return according to CAPM = 4% + 0.25 * (20% - 4%) = 7.5%
b. To determine whether each stock earned an abnormal return using both pricing models, we compare the actual return to the expected return from each model.
For each stock:
Stock A:
Abnormal Return according to John's model = Actual Return - Expected Return (John's model) = 32% - 1.6% = 30.4%
Abnormal Return according to CAPM = Actual Return - Expected Return (CAPM) = 32% - 32% = 0%
Stock B:
Abnormal Return according to John's model = Actual Return - Expected Return (John's model) = 32% - 4.8% = 27.2%
Abnormal Return according to CAPM = Actual Return - Expected Return (CAPM) = 32% - 30% = 2%
Stock C:
Abnormal Return according to John's model = Actual Return - Expected Return (John's model) = 24% - 1.4% = 22.6%
Abnormal Return according to CAPM = Actual Return - Expected Return (CAPM) = 24% - 20% = 4%
Stock D:
Abnormal Return according to John's model = Actual Return - Expected Return (John's model) = 12% - 0.8% = 11.2%
Abnormal Return according to CAPM = Actual Return - Expected Return (CAPM) = 12% - 10% = 2%
Stock E:
Abnormal Return according to John's model = Actual Return - Expected Return (John's model) = 8.5% - 0.6% = 7.9%
Abnormal Return according to CAPM = Actual Return - Expected Return (CAPM) = 8.5% - 7.5% = 1%
c.)The real-world difficulties of determining whether the market is efficient can be understood through the above John’s model has given highly unrealistic and exaggerated values of expected returns, which is not practical. The results of John's model vary significantly from those of CAPM. As a result, it can be said that market efficiency can be a complex concept to grasp, and some pricing models may not always yield realistic results. Thus, the difficulties of determining market efficiency can be revealed.
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Splish Inc. has been manufacturing its own shades for its table lamps. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 50% of direct labour costs. The direct materials and direct labour costs per unit to make the lampshades are $4.50 and $5.80, respectively. Normal production is 48,200 table lamps per year.
A supplier offers to make the lampshades at a price of $13.50 per unit. If Splish Inc. accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $42,800 of fixed manufacturing overhead currently being charged to the lampshades will have to be absorbed by other products.
(a)
Prepare the incremental analysis for the decision to make or buy the lampshades. (Round answers to 0 decimal places, e.g. 5,275. If an amount reduces the net income then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). While alternate approaches are possible, irrelevant fixed costs should be included in both options when solving this problem.)
Answer: (a) Incremental analysis is a technique that can be used to determine if there is a benefit or loss from an alternative solution to a problem. It compares the costs and benefits of each decision or course of action that a company has to choose from.
Let's prepare the incremental analysis for the decision to make or buy the lampshades. By comparing the cost of making the lampshades to the cost of purchasing the lampshades from an outside supplier. The cost of purchasing lampshades from an outside supplier would be a variable cost.
The incremental analysis for the decision to make or buy the lampshades is shown below:
Make Buy Direct materials cost per unit $4.50 -Direct labor cost per unit $5.80 -Variable manufacturing overhead cost per unit ($5.80 × 50%) $2.90 -Variable manufacturing cost per unit $13.20 $13.50Contribution margin per unit $0.00 $(0.30)Total contribution margin $0 $(14,460)Fixed manufacturing overhead cost $42,800 $42,800Net income $(42,800) $(57,260)
As per the incremental analysis, if Splish Inc. buys the lampshades from the supplier at a cost of $13.50, it would save $13.20 per unit on the variable cost of manufacturing overhead. This saving would increase the net income by $0.30 per unit ($13.50 – $13.20).
However, the company would need to absorb the fixed manufacturing overhead cost of $42,800. If Splish Inc. makes the lampshades, it will earn no contribution margin on the lampshades, resulting in a negative contribution margin of $(0.30) per unit, leading to a net loss of $(57,260) per year.
The incremental analysis is as follows:
The incremental analysis is a decision-making tool used to determine the financial impact of one option against the other. In this scenario, the incremental analysis will be used to determine whether Splish Inc. should make or buy the lampshades. The analysis will show the difference between the current situation and the situation if they opt to buy from the supplier.
The first step is to compute the current cost of producing the lampshades. The direct materials and direct labor costs per unit to make the lampshades are $4.50 and $5.80, respectively, while the variable manufacturing overhead is charged to production at the rate of 50% of direct labor costs.
The variable manufacturing overhead cost per unit is calculated as:
Variable manufacturing overhead cost per unit = 50% × Direct labor cost per unit
Variable manufacturing overhead cost per unit = 50% × $5.80
Variable manufacturing overhead cost per unit = $2.90
Therefore, the variable manufacturing cost per unit is:
Variable manufacturing cost per unit = Direct materials cost per unit + Direct labor cost per unit + Variable manufacturing overhead cost per unit
Variable manufacturing cost per unit = $4.50 + $5.80 + $2.90
Variable manufacturing cost per unit = $13.20
To determine whether Splish Inc. should make or buy the lampshades, we must first compare the current cost of production to the supplier's offer.
Supplier's offer per unit = $13.50The difference between the two options is $0.30 ($13.50 – $13.20) per unit. This is the difference between the variable costs of making and buying the lampshades. If Splish Inc. chooses to buy the lampshades, it will save $0.30 per unit on variable costs.
Next, we must consider the fixed manufacturing overhead. If Splish Inc. chooses to buy the lampshades, it will need to absorb the $42,800 fixed manufacturing overhead cost that is currently being charged to the lampshades. This means that the fixed overhead cost will need to be absorbed by other products, which will reduce their contribution margin.If Splish Inc. chooses to make the lampshades, it will earn no contribution margin on the lampshades, which will lead to a negative contribution margin of $(0.30) per unit. This will result in a net loss of $(57,260) per year. Therefore, it is recommended that Splish Inc. should buy the lampshades from the supplier.
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Suppose that equilibrium income is 3400, the marginal propensity to save is 0.25, the marginal tax rate is 0.1 and the marginal propensity to import is 0.2. If the natural level of output/income is equal to 3050, by how much will autonomous taxation need to change to close the gap and move the economy to the natural level of output/income? Provide answer to 1 decimal point. If a decrease in autonomous taxation is required you must place a negative sign in front of your answer.
The initial equilibrium income is 3400, and the natural level of income is 3050. Autonomous taxation must change to reduce the gap and return the economy to the natural level of output/income. As a result, autonomous taxation must decrease, which can be expressed as a negative value.
To bridge the gap between the initial equilibrium income and the natural level of output/income, the formula for calculating the required change in autonomous taxation is Change in autonomous taxation = (natural level of income - equilibrium income) / [1 - (marginal propensity to save + marginal tax rate + marginal propensity to import)] When autonomous taxation decreases, it helps to raise consumption and output/income. Therefore, a negative sign is placed in front of the answer.
According to the given information: Equilibrium income is 3400The marginal propensity to save is 0.25. The marginal tax rate is 0.1. The marginal propensity to import is 0.2 The natural level of output/income is 3050 Substituting the given values in the formula above, we have: Change in autonomous taxation = (3050 - 3400) / [1 - (0.25 + 0.1 + 0.2)] Change in autonomous taxation = (-350) / [1 - 0.55]Change in autonomous taxation = (-350) / 0.45 Change in autonomous taxation = -777.8 ≈ -777.8 units Therefore, autonomous taxation must decrease by approximately 777.8 units to close the gap and return the economy to the natural level of output/income.
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This capstone project will allow students to further demonstrate their knowledge and application of personal finance planning. Personal finance planning includes finance management, risk management, investment, and retirement planning. In the final project, we continue working with Hanji and Jane and help them plan their retirement. Hanji just turned 55, whereas Jane turned 54. Both have been active and do daily exercise. Hanji and Jane are both non-smokers and rarely drink. Hanji's parents are healthy, and they are in their 80s. Jane's father passed away 20 years ago due to a car accident, and her mother is in her 80s and healthy. When Jane's father died, they sold their townhouse in Yaletown 18 years ago. They bought Jane parent's house in West Vancouver. Jane's mother has been living with them and helps Jane take care of her granddaughter, Emma. Emma is already 24 years old and went to UBC and finished her degree in computer science. Emma currently works for Amazon as a senior developer and lives independently. Emma is also smart with her money and bought her apartment in Yaletown. Hanji and Jane have been thinking about their retirement, and they come to you for further advice. During the meeting, you were informed that they would not move out of their current house as they plan to take care of Jane's mom. Once they pass away, they want to leave this house to their daughter Emma as a heritage in the family. Both Hanji and Jane are considering early retirement at age 60 but are unsure about their financial situation after retirement. Jane's mom is healthy but needs assistance. They plan to find a nursing home for Jane's mom this year. When Jane's dad passed away, her mom received the life insurance payout. She has been financially independent, and she will be able to cover her nursing home expenses. For the last 35 years, both have lived in Canada and made the full amount of CPP contribution. However, they both work for medium size firm that did not provide employees with pension plans. Hanji and Jane are both wise with their savings. The house and car have been fully paid off, and they have $750,000 savings in GIC, $250,000 in RRSP, and $100,000 in TFSA. As they plan to leave the house as an estate to their daughter, they prefer using their savings for their retirement. There are only five years away from their retirement, and they want to know whether they can retire at age 60. They want to maintain the same lifestyle and have a budget of $6000 per year for travel and leisure during the first five years of retirement. To plan their retirement, they have been thinking about purchasing a Sunlife annuity, which needs a lump sum investment of $600,000 and receives $50,000 per year for the rest of their life. Please help Hanji analyze their retirement plan and find how much they need to retire at 60. Currently, Hanji generates $100,000 in after-tax earnings, and Jane has been working independently as a financial accountant. Jane's after-tax earnings are $65,000 per year. Required: Calculate their life expectancy (10%) Calculate their federal support earnings (25%) Calculate after expense net cash flow after retirement (10%) Calculate the amount they need to retire (25%) Prepare retirement plan table (30%)
Given that Hanji just turned 55, whereas Jane turned 54 and they both plan on early retirement at the age of 60 years. So, they are five years away from their retirement and the life expectancy of the couple is 7.273 years.
Lifetime income from annuity$50,000Using a present value of an annuity table, the present value factor is 13.2467. Therefore,
the amount needed for purchasing the annuity is;Annuity cost = $50,000/13.2467 = $3,777,522.11Federal support earnings
The OAS (Old Age Security) for both of them can be calculated to be;$613.53*12 = $7,362.36CPP (Canada Pension Plan) for both of them will be;$7,176.00 + $7,176.00 = $14,352.00Therefore, the total federal support earnings will be $21,714.36 per year.After expense net cash flow after retirement
The outflow for the five years of retirement can be calculated to be;
$72,000 + $74,160 + $76,295 + $78,406 + $80,492
= $381,353
The inflow for the five years of retirement can be calculated to be;
$125,503 + $128,217 + $131,053 + $134,010 + $137,092
= $655,875
Therefore, the after expense net cash flow after retirement will be;
$655,875 - $381,353 = $274,522
Amount needed to retire For the five years of retirement, the cost of living will be;
$66,000 + $67,980 + $69,931 + $71,855 + $73,751
= $349,517
The budget for travel will be;$6,000 + $6,180 + $6,364 + $6,551 + $6,741
= $32,836 Therefore, the total expenses for the five years of retirement will be;$349,517 + $32,836 = $382,353After-tax earnings of Hanji $100,000
Therefore, the total after-tax earnings for Hanji for the next five years will be;
$100,000*5 = $500,000
After-tax earnings of Jane$65,000Therefore, the total after-tax earnings for Jane for the next five years will be;
$65,000*5 = $325,000
Total savings Savings in GIC$750,000Savings in RRSP$250,000Savings in TFSA$100,000
Therefore, the total savings for both of them will be;$750,000 + $250,000 + $100,000 = $1,100,000Therefore, the amount needed to retire will be;$382,353 - $500,000 - $325,000 - $21,714.36 - $47,500 = -$51261.36As the value of the amount needed to retire is negative, it means that Hanji and Jane have enough savings to retire. Thus, the couple can retire at age 60.
Life expectancy
The formula to calculate life expectancy is;
PV = FV/(1+i)n Here, PV (Present Value) = 1,
FV (Future Value) = 0.10,
i (Interest Rate) = 10%, and
n (Periods) = Life Expectancy.
Therefore, the life expectancy will be;
1 = 0.10/(1+0.10)n
Taking logarithm on both sides and solving the equation;
n = 7.273 years
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"It is now January 1, 2021. Today you will deposit $1,000 into a
savings account that pays 8% If the bank compounds interest
annually, how much will you have in your account on January 1,
2024?
Depositing $1,000 into a savings account with an 8% annual compounding interest rate would result in approximately $1,259.70 in the account on January 1, 2024.
If the bank compounds interest annually at a rate of 8%, the formula to calculate the future value of the investment is:
Future Value = Principal * (1 + Interest Rate)^Number of Years
In this case, the principal amount is $1,000, the interest rate is 8% (or 0.08), and the number of years is 3 (from January 1, 2021, to January 1, 2024).
Plugging these values into the formula:
Future Value = $1,000 * (1 + 0.08)^3
Future Value = $1,000 * (1.08)^3
Future Value = $1,000 * 1.2597
Future Value ≈ $1,259.70
Therefore, if you deposit $1,000 into a savings account that pays 8% interest compounded annually, you would have approximately $1,259.70 in your account on January 1, 2024.
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QUESTION 3 All of the following are components listed on a project plan except: a. Gantt Chart b. Stakeholders requirements C. WBS d. Budget
All of the following are components listed on a project plan except: b. Stakeholders requirements.
A project plan typically includes components such as a Gantt Chart, Work Breakdown Structure (WBS), and Budget. These elements help outline the timeline, tasks, resources, and financial aspects of the project. However, stakeholder requirements are not typically listed as a separate component on a project plan. While stakeholder analysis and engagement are critical aspects of project management, the specific requirements and expectations of stakeholders are often integrated into the various components of the project plan, such as the objectives, deliverables, and tasks outlined in the WBS. The project plan serves as a comprehensive document that guides the execution of the project and ensures that all necessary elements are accounted for.
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Advanced parts ltd manages funds for a number of companies and wealthy clients. The investment strategy is tailored to each client’s needs. For a new client, the company has been authorized to invest up to $1.2 million in two investment funds: a stock fund and a money market fund. Each unit of the stock fund costs $50 and provides an annual return at $5 per unit; each unit of the money market fund costs $100 and provides an annual return at $4 per unit. The client wants to minimize risk subject to the requirement that the annual income from the investment be at least $60000.
According to Advanced companies risk measurement system, each unit invested in the stock fund has a risk index of 8, and each unit invested in the money market fund has a risk index of 3; the higher risk index associated with the stock fund simply indicates that it is the risker investment. the client also specifies that at least $3000 be invested in the money market funds. What is the annual income constraint?
The client wants to minimize risk subject to the requirement that the annual income from the investment is at least $60000. The annual income constraint is 60000.
To determine the annual income constraint, we need to calculate the total annual income generated by the investment.
Let's assume the number of units invested in the stock fund is 'x' and the number of units invested in the money market fund is 'y'.
The cost of each unit of the stock fund is $50, and it provides an annual return of $5 per unit. Therefore, the total annual income from the stock fund investment can be expressed as 5x.
The cost of each unit of the money market fund is $100, and it provides an annual return of $4 per unit. The client specifies that at least $3,000 be invested in the money market fund.
Hence, the total annual income from the money market fund investment can be expressed as 4y.
We are given that the client wants to minimize risk subject to the requirement that the annual income from the investment is at least $60,000.
Therefore, the objective function is to minimize risk, and the constraint is that the total annual income from the investment should be greater than or equal to $60,000.
Mathematically, the objective function can be represented as:
Minimize: 8x + 3y (risk index)
Subject to the constraints:
5x + 4y ≥ 60,000 (annual income constraint)
y ≥ 3,000 (minimum investment in money market fund)
Therefore, the annual income constraint is $60,000.
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What is one thing you are interested in exploring further about making decisions that involve diverse perspectives? How will.
What you are learning about power and authority affect your understanding.
One thing I am interested in exploring further about making decisions that involve diverse perspectives is the impact of unconscious bias on decision-making processes. Unconscious bias refers to the automatic judgments we make about others without being aware of them. It can lead to discrimination, stereotypes, and exclusion in decision-making processes.
To address unconscious bias and make more inclusive decisions, it is important to be aware of our biases and take steps to mitigate their impact. This can involve seeking out diverse perspectives, gathering data and information, and using decision-making processes that encourage inclusion and participation.
Understanding the role of power and authority in decision-making processes is critical to avoid or minimize the impact of unconscious bias. Power dynamics can significantly influence decision-making, particularly when one group holds more power than others. By learning about power and authority, we can gain insights into how decision-making processes work and the potential barriers they create for inclusive decision-making.
Recognizing power imbalances helps us understand how certain voices or perspectives may be marginalized or overlooked in decision-making processes. It prompts us to question and challenge these dynamics to ensure that decisions are fair, equitable, and considerate of diverse perspectives.
By understanding power and authority, we can develop strategies to mitigate their negative effects on decision-making. This may involve creating structures that distribute power more evenly, fostering an inclusive and participatory decision-making environment, and implementing policies that promote diversity, equity, and inclusion.
In summary, learning about power and authority enhances our understanding of decision-making processes involving diverse perspectives. It enables us to recognize and address unconscious biases that can hinder inclusivity, and it empowers us to create fairer and more equitable decision-making practices.
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Imagine you are the brand manager for a major brand (preferably, the one that you have worked on in your coursework, but you may choose another if you prefer). You have been asked to present to the parent company CMO an idea for a new product or a new market. Do the following:
i) Scope out this presentation
ii) Describe the arguments you would you use to convince her that the idea would work
iii) Outlinetherisksinvolved,anddescribeyourplansforminimisingthem
As a brand manager for a major brand, it is your job to present a new product or new market idea to the parent company CMO.
Here are the ways you can scope out the presentation, describe the arguments that you would use to convince the CMO that the idea would work and outline the risks involved, and describe your plans for minimizing them. Scoping out the Presentation The following are the ways to scope out the presentation: Identify the problem that the new product or new market can solve and how it relates to the company's current offerings. Identify the target audience for the new product or new market. Determine the timeline and budget for the new product or new market. Describe the Arguments To convince the CMO that the idea would work, you can use the following arguments:Market opportunity: You can show how the new product or new market will increase the company's revenue and help it reach a new audience. You can also demonstrate that there is a gap in the market that the new product or new market can fill. Competitive advantage: You can show how the new product or new market can differentiate the company from its competitors and help it stand out in the market. Customer needs:
You can show how the new product or new market can meet customer needs and address their pain points. Outline the Risks Involved and Describe Your Plans for Minimizing Them To minimize the risks involved in introducing a new product or new market, you can take the following steps: Market research: Conduct market research to ensure that there is a demand for the new product or new market. Testing: Test the new product or new market with a small group of customers before launching it. Launch strategy: Develop a launch strategy that takes into account potential risks and how to mitigate them. Product quality: Ensure that the new product or new market meets the company's quality standards and is free from defects. Communication: Communicate with customers and stakeholders to address any concerns and provide updates on the progress of the new product or new market.
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A partnership agreement states explicitly the rights and duties of partners with each party assuming joint and several liability.
a. true
b. false
A partnership agreement states economics explicitly the rights and duties of partners with each party assuming joint and several liability is true.
Correct answer is, True.
In a partnership agreement, the duties and rights of partners are explicitly stated. The division of profits and losses, as well as the contributions of each partner, should be clearly defined. It is essential that each partner understands their responsibility to the partnership.In a partnership agreement, the liability of the partners can be specified as either joint and several or limited liability. Joint and several liability ensures that each partner is responsible for all the partnership's debts and obligations.
It implies that each partner is equally responsible for the obligations, and creditors can seek compensation from any or all partners. As a result, in this scenario, the statement is correct.It is, nevertheless, critical to understand that joint and several liability can expose partners to significant financial risks. As a result, partners must choose their business partners with caution and consider a more conservative approach to risk management in their business decisions.
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According to Porter's Five Forces model, if there are many competitors and the barriers to entry are low, the O industry is unattractive O industry is attractive O customers have low bargaining power O industry is mature.
According to Porter's Five Forces model, if there are many competitors and the barriers to entry are low,.it indicates that the industry is unattractive.
Porter's Five Forces model is a framework used to analyze the competitive intensity and attractiveness of an industry. It considers five key forces that shape competition within an industry.
Threat of new entrants: Refers to the likelihood of new competitors entering the market. If barriers to entry are low, it becomes easier for new players to enter the industry, increasing competition.
Bargaining power of suppliers: Refers to the influence suppliers have over the industry. If suppliers have significant power, they can dictate terms and prices, reducing industry attractiveness.
Bargaining power of buyers: Refers to the influence customers have over the industry. If customers have strong bargaining power, they can demand lower prices or better terms, affecting industry profitability.
Threat of substitute products or services: Refers to the availability of alternative products or services that can fulfill the same customer needs. If there are many substitutes, it increases competition and reduces industry attractiveness.
Intensity of competitive rivalry: Refers to the level of competition among existing competitors in the industry. If there are many competitors and they compete fiercely, it can decrease industry profitability.
In the context of Porter's Five Forces model, when there are many competitors and the barriers to entry are low, it indicates that the industry is unattractive. Low barriers to entry make it easier for new competitors to enter the market, resulting in increased competition and potential erosion of profitability for existing players. Therefore, companies operating in such an industry would face challenges in maintaining their market share and profitability.
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Wilson Corporation’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $850. What is their yield to maturity? Show calculations.
The yield to maturity (YTM) of Wilson Corporation's bonds is approximately 12.16%.
To calculate the yield to maturity (YTM) of Wilson Corporation's bonds, we can use the following formula:
YTM = (Annual Interest Payment + ((Par Value - Purchase Price) / Number of Years)) / ((Par Value + Purchase Price) / 2)
Given information:
- Annual Interest Payment: $100 (10% of the $1,000 par value)
- Par Value: $1,000
- Purchase Price: $850
- Number of Years: 12
Substituting these values into the formula, we get:
YTM = ($100 + (($1,000 - $850) / 12)) / (($1,000 + $850) / 2)
Simplifying further:
YTM = ($100 + ($150 / 12)) / ($1,850 / 2)
YTM = ($100 + $12.50) / $925
YTM = $112.50 / $925
YTM ≈ 0.1216 or 12.16%
Therefore, the yield to maturity (YTM) of Wilson Corporation's bonds is approximately 12.16%.
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You own a portfolio that has $1,700 invested in Stock A and $3,300 invested in Stock B. If the expected returns on these stocks are 9 percent and 16 percent, respectively, what is the expected return on the portfolio?
Multiple Choice
A. 14.30%
B. 11.38%
C. 13.62%
D. 12.50%
E. 13.89%
The formula to calculate the expected return on a portfolio is to add the weighted returns of each stock. The weights are determined by dividing the amount invested in each stock by the total portfolio value.
Expected return on portfolio = (Weight of Stock A x Expected return on Stock A) + (Weight of Stock B x Expected return on Stock B)Weight of Stock A = $1,700 / ($1,700 + $3,300) = 0.34Weight of Stock B = $3,300 / ($1,700 + $3,300) = 0.66Expected return on portfolio = (0.34 x 0.09) + (0.66 x 0.16) = 0.0306 + 0.1056 = 0.1362 or 13.62%
It is given that $1,700 is invested in Stock A and $3,300 is invested in Stock B. The expected return on Stock A is 9%, and the expected return on Stock B is 16%. We need to find the expected return on the portfolio.The expected return on a portfolio is calculated by adding the weighted returns of each stock. The weights are determined by dividing the amount invested in each stock by the total portfolio value.
Using the given data, the total value of the portfolio is:$1,700 + $3,300 = $5,000The weight of Stock A in the portfolio is:$1,700 / $5,000 = 0.34The weight of Stock B in the portfolio is:$3,300 / $5,000 = 0.66
The expected return on the portfolio is: Expected return on portfolio = (Weight of Stock A x Expected return on Stock A) + (Weight of Stock B x Expected return on Stock B)= (0.34 x 0.09) + (0.66 x 0.16)= 0.0306 + 0.1056= 0.1362 or 13.62%Therefore, the expected return on the portfolio is 13.62%.
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As a member of VA Corporation's financial staff, you must estimate the Year 1 cash flow for a proposed project with the following data. Under the new tax law, the equipment used in the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t-o. What is the Year 1 cash flow? Sales revenues, each year $51,100 Operating costs $18,400 Interest expense $4,000 25.0% O a. 524,525 5 528 525 Tax rate $21.525 0,532,700 525 52
Year 1 Cash flow: The formula to calculate cash flow is: Cash flow = EBIT × (1 – T) + Depreciation – Capital expenditures – Δ Net working capital Here, EBIT = Sales revenues – Operating costs – Depreciation – Interest expense= $51,100 – $18,400 – $0 – $4,000= $28,700
Therefore, cash flow = $28,700 × (1 – 0.25) + $0 – $0 – ΔNWCNow,Net working capital (NWC) = Operating current assets – Operating current liabilities Operating current assets = $10,500Operating current liabilities = $5,800Therefore, NWC = $10,500 – $5,800 = $4,700As per the given problem, there is no change in NWC. So, ΔNWC = $0Therefore, cash flow = $28,700 × (1 – 0.25) + $0 – $0 – $0= $21,525 + $0 + $0= $21,525Thus, the Year 1 cash flow is $21,525.
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Which of the following is a method for measuring a firm's strategic alignment? Select one: O a. Markov analysis O b. a balanced scorecard c. benchmarking O d. an HR "dashboard"
A balanced scorecard is a method for measuring a firm's strategic alignment. What is a balanced scorecard?A balanced scorecard is a strategic management tool that allows companies to analyze the performance of their business activities against the company's goals and strategies.
The balanced scorecard views an organization from four different perspectives, namely the financial perspective, customer perspective, internal business process perspective, and learning and growth perspective.The Balanced Scorecard provides senior management with a clear, easy-to-read, and actionable overview of the organization's performance. It is regarded as a comprehensive management system that measures how well a company's current activities contribute to achieving the company's strategic objectives.To summarize, a balanced scorecard is a technique for assessing strategic alignment in a company.
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you're trying to save to buy a new $206,000 ferrari. you have $56,000 today that can be invested at your bank. the bank pays 6.4 percent annual interest on its accounts. how long will it be before you have enough to buy the car?
You will take approximately 16.21 years to save enough to buy the car at an annual interest rate of 6.4%.
To calculate the duration before you can afford to buy the Ferrari, we can use the time value of money concept.
Present Value (PV) is $56,000, and we want to find Future Value (FV) of the money invested.
We will use the formula for Future Value as FV = PV x (1 + r) n, where PV is present value, r is the interest rate, and n is the number of years.
Using the formula,Future Value = $56,000 x (1 + 6.4%) n dollars
To solve for n, we need to find the time period (in years) it takes for the Future Value to be $206,000.
Substituting the values,206,000 = 56,000(1 + 6.4%)n
We can simplify the above equation as:
3.6786 = (1 + 0.064)n
Taking the logarithm of both sides,log 3.6786 = log (1 + 0.064) n
Using a calculator, we can solve for n to find out how long it takes to have enough money to buy the Ferrari
.n = log 3.6786/log 1.064n ≈ 16.21 years
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President Biden orders that people who encouraged, supported, or participated in the January 6, 2021 attack on the U.S. Capitol be arrested by the military and then tried by military tribunal. The Army arrests a man known as the Q-Anon Shaman and tries him by military tribunal, where three Army officers decide he is guilty of participating in the attack. This tribunal sentences him to life in military prison. The Shaman seeks a writ of habeas corpus, claiming the process used against him is unconstitutional. Would you grant him this writ?
The granting of a writ of habeas corpus is typically within the jurisdiction of the judiciary, which ensures the legality of detentions and reviews the constitutionality of the process.
Will the Shaman get the WritIn the scenario you presented, if the Q-Anon Shaman believes that the process used against him in the military tribunal is unconstitutional, he has the right to seek a writ of habeas corpus through the appropriate legal channels.
Whether the Shaman's claim would be granted would depend on various factors, including the specific circumstances, evidence, and the interpretation of the law by the courts.
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The Equity Risk Premium is:
a. never positive.
b. the risk-free rate less the expected return of a stock.
c. the expected return of a stock less the risk free rate.
d. always positive.
The answer to the given question is option (c) the expected return of a stock less the risk-free rate.
The Equity Risk Premium is defined as the excess return that a stock or the stock market provides over a risk-free rate, usually long-term government bonds. Equity risk premium is an additional return earned by an investor when investing in the equity market over and above the risk-free rate.
This additional return is provided for taking on the higher risk associated with equities as an asset class over bonds or government securities. Equity risk premium is the excess return that an investment provides to the investors over and above the risk-free rate of return. The formula to calculate Equity Risk Premium (ERP) is ERP = Expected Return on the Stock – Risk-Free Rate of Return.
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In this deliverable teams using Microsoft Project®️ will create a work breakdown structure (WBS) by listing all of the project life cycle and systems development life cycle phases and the associated deliverables that are needed for completing your project. Be sure to work through the MPS tutorial first. Also, be sure to follow the work package concept shown in Figures 5.8 and 5.9. Your WBS should include:
a. Milestones for each phase and deliverable—Achieving a milestone will tell every- one associated with the project that the phase or deliverable was completed satisfactorily.
b. Activities/Tasks—Define a set of activities or tasks that must be completed to produce each deliverable.
c. Resource Assignments—Assign people and other appropriate resources to each activity. This will be based on the people and resources that you identified when you completed the project infrastructure assignment from the previous chapter. Keep in mind that adding resources to an activity may allow the activity to be completed in a shorter amount of time; however, it may increase the cost of completing that task or activity.
d. Estimates for Each Activity/Task—Based on the tasks or activities and the resources assigned, develop a time estimate for each task or activity to be completed. For the purposes of this assignment, you should use a combination of estimation techniques such as time-boxing and bottom-up estimation.
Based on the given instructions, here is a sample work breakdown structure (WBS) for a project using Microsoft Project®️. Please note that this is a general template, and you may need to adapt it to your specific project requirements.
a. Milestones for each phase and deliverable:
1.Project Initiation Phase
Milestone: Project Charter Approved
2. Requirements Gathering Phase
Milestone: Requirements Document Approved
3. Design Phase
Milestone: Design Document Approved
4. Development Phase
Milestone: Development Completed and Reviewed
5. Testing Phase
Milestone: Testing Completed and Approved
6. Deployment Phase
Milestone: System Deployed and Operational
7. Project Closure Phase
Milestone: Project Closure
Documentation Completed
b. Activities/Tasks:
1.Project Initiation Phase
Define project scope and objectives
Identify project stakeholders
Develop project charter
2. Requirements Gathering Phase
Conduct stakeholder interviews
Elicit and document project requirements
Validate requirements with stakeholders
3. Design Phase
Create system architecture
Design user interface
Design database schema
4. Development Phase
Code development
Unit testing
Integration testing
5. Testing Phase
System testing
User acceptance testing
Bug fixing and retesting
6. Deployment Phase
Prepare deployment plan
Install and configure the system
Conduct user training
7. Project Closure Phase
Prepare project closure report
Conduct project review meeting
Archive project documentation
c. Resource Assignments:
1.Project Initiation Phase
Project Manager: John
Business Analyst: Mary
2. Requirements Gathering Phase
Business Analyst: Mary
Subject Matter Expert: Sarah
3. Design Phase
System Architect: Tom
UI Designer: Alex
Database Administrator: Mark
4. Development Phase
Developers: Team A
Testers: Team B
5. Testing Phase
Testers: Team B
Users: Department X
6. Deployment Phase
Deployment Specialist: Mike
Trainers: Trainers' Team
7. Project Closure Phase
Project Manager: John
Team Leads: All team leads
d. Estimates for Each Activity/Task:
1.Project Initiation Phase
Define project scope and objectives: 1 week
Identify project stakeholders: 2 days
Develop project charter: 1 week
2. Requirements Gathering Phase
Conduct stakeholder interviews: 2 weeks
Elicit and document project requirements: 3 weeks
Validate requirements with stakeholders: 1 week
3. Design Phase
Create system architecture: 2 weeks
Design user interface: 2 weeks
Design database schema: 1 week
4. Development Phase
Code development: 4 weeks
Unit testing: 2 weeks
Integration testing: 3 weeks
5. Testing Phase
System testing: 2 weeks
User acceptance testing: 1 week
Bug fixing and retesting: 2 weeks
6. Deployment Phase
Prepare deployment plan: 1 week
Install and configure the system: 1 week
Conduct user training: 1 week
7. Project Closure Phase
Prepare project closure report: 1 week
Conduct project review meeting: 2 days
Archive project documentation:
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What is the value of a bond that has a par value of $1,000, a coupon rate of 10.39 percent (paid annually), and that matures in 16 years? Assume a required rate of return on this bond is 9.72 percent.
Round the answer to two decimal places.
Answer:
To calculate the value of the bond, we can use the present value formula for a bond:
Bond Value = (Coupon Payment / Discount Rate) * (1 - (1 / (1 + Discount Rate)^n)) + (Par Value / (1 + Discount Rate)^n)
Explanation:
Where:
Coupon Payment is the annual coupon payment
Discount Rate is the required rate of return
n is the number of years to maturity
Par Value is the face value of the bond
Given:
Par Value = $1,000
Coupon Rate = 10.39% (paid annually)
Required Rate of Return = 9.72%
Maturity = 16 years
First, we calculate the annual coupon payment:
Coupon Payment = Par Value * Coupon Rate = $1,000 * 10.39% = $103.90
Next, we substitute the values into the bond value formula:
Bond Value = ($103.90 / 0.0972) * (1 - (1 / (1 + 0.0972)^16)) + ($1,000 / (1 + 0.0972)^16)
Using a financial calculator or spreadsheet, the bond value is approximately $1,307.12.
Therefore, the value of the bond is approximately $1,307.12.
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QUESTION 6 What is considered as a project constrains? a. Scope, requirements b. Time, scope c. Budget, quality d. Scope, time, budget
Project constraints are the limitations of a project, such as time, budget, and scope(D). A project's scope, budget, and timeline are among the most important constraints.
Scope refers to the project's objectives, including the features and characteristics that will be built or delivered. The scope of a project is critical in that it defines the project's boundaries and establishes the project's requirements. Time is also an important constraint because it is the amount of time available for the project to be completed.Quality is also an important constraint, but it is frequently viewed as a consideration rather than a constraint. Because quality criteria are often implicit, rather than explicitly stated, they can be difficult to identify.
Nonetheless, project quality is critical because it has a direct impact on the success of the project. In conclusion, the constraints of a project are the limitations that a project faces such as time, scope, and budget.(D)
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If someone believes that markets are always efficient then what is the best investment strategy for them if they want to invest in the stock market?
a.
Fundamental analysis
b.
Index investing
c.
None of the options
d.
Technical analysis
If someone believes that markets are always efficient then the best investment strategy for them if they want to invest in the stock market is:
b. Index investing.
Index investing is a passive investment strategy that aims to track or replicate the performance of a market index. The investor seeks to replicate the returns of the overall market rather than trying to outperform it. An index fund is the most popular investment vehicle for index investing. Index funds offer broad diversification and low costs, making them an attractive option for investors who believe that markets are efficient and that active management does not add value.
The primary advantage of index investing is that it allows investors to gain exposure to a broad market index while maintaining diversification and low costs. Since index funds track the performance of the overall market, they tend to outperform most actively managed mutual funds. Additionally, index funds provide investors with a low-cost way to gain exposure to a variety of asset classes and sectors of the market.
Thus, the correct option is : (b) Index investing.
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Question 2 Consider the labor market in the following situation (Note: All the parameters are positive). (1) Wage Determination: W = PeF(u, z), F(u, z) = Boz - B₁u (2) Price Determination: P = (1 + μ)MC (3) Aggregate Production Function: Y = AN 1 (4) L= the number of people in the labor force (5) N-the number of the employed in L, U = L – N (6) Unemployment rate: u = - ==1-2 (7) MC (Marginal Cost of Production) measures how much additional product costs. (a) In this economy, how much is MC? (b) Derive the short-run AS relation in this economy while assuming price expectation (Pe) is exogenously given. (c) Find the natural rate of unemployment and the natural level of aggregate output when A=1. (d) How will the natural rate of unemployment and the natural level of aggregate output change if A drops to 1/2 due to a certain natural disaster?
a) MC = P / (1 + μ) = P/2 [since μ = 1].
b) The short-run AS curve is given by this relationship, Y = [f(1 - u, z)]² / w² = [f{1 - u[PeF(u, z)]/w}, z]² / w²
c) The natural level of output is given byY* = AN* = fN*(1 - u*, z)
d) In the short run, there will be a recession and an increase in the unemployment rate.
a) Marginal Cost of Production (MC) is given by:P = (1 + μ) MCFrom the given problem, we have
P = (1 + μ) MC => MC = P / (1 + μ)
Therefore, MC = P / (1 + μ) = P/2 [since μ = 1].
b) Aggregate supply (AS) can be derived from the production function and the factor market equilibrium. Let the real wage rate be w = W/P.
Then the profit maximization condition for the firms implies,
w = fN(1 - u, z) [since MPN / w = 0] or (1 - u) = (w / fN) / z
Also, using the production function, we have:
Y = AN = fN(1 - u, z)N
therefore, Y = fN(1 - u, z)² / w² ⇒ Y = [f(1 - u, z)]² / w²
Hence, AS is given by
Y = [f(1 - u, z)]² / w² = [f{1 - u[PeF(u, z)]/w}, z]² / w²
Thus, the short-run AS curve is given by this relationship.
c) The natural rate of unemployment is the rate that prevails in the long run equilibrium, given by the intersection of the aggregate supply (AS) curve with the demand for labor (DL) curve.
The natural level of output is the level that corresponds to the natural rate of unemployment in the production function.
The demand for labor can be derived from the marginal product of labor (MPL) and the real wage rate, which is given by:MPL = fN(1 - u, z) / N = [f(1 - u, z)] / N
Then the demand for labor curve is given byN = F(w, z) = [f(1 - u[PeF(u, z)]/w), z] / w
Also, the natural rate of unemployment is given byu* = 1 - (B1 / Bo)
And the natural level of output is given byY* = AN* = fN*(1 - u*, z)
d) The effect of the drop in A on the natural rate of unemployment and the natural level of output depends on the labor market and the price expectations.
The natural rate of unemployment will increase, given by:
u* = 1 - (B1 / Bo) => u*’ = 1 - (B1 / Bo)’ > u*
The natural level of output will fall, given by:
Y* = fN*(1 - u*, z) => Y*’ = fN*’(1 - u*’, z) < Y*
Therefore, in the short run, there will be a recession and an increase in the unemployment rate.
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There are only two firms in an industry with demand curves q1 = 30 - P and q2 = 30 - P. Both have no fixed costs and each has a marginal cost of 10 per unit produced. If they behave as profit-maximizing price takers, each produces 20 units and sells them at a price of 10 so that each firm makes zero economic profits. If they formed a cartel, the profit-maximizing price is
Select one:
a. 25.
b. 20.
c. 15.
d. 10.
The profit-maximizing price if they built a cartel is 15 dollars. This corresponds to option c which also states the same figure.
Economic profits of the firms in the cartelThe marginal cost of producing goods is $10 per unit.
To maximize their profits, firms produce goods up to the point where their marginal cost equals their marginal revenue. For price-taking companies, the marginal revenue is equal to the price.
As a result, both companies are currently producing 20 units and selling them for $10 apiece so that each company earns zero economic profits.
Therefore, the overall production of the firms combined would be 40 units.
Each firm would sell its share of goods at a price of 15 dollars.
The total market demand is Q = 60 - 2P, where P is the price.
Since both firms will sell 20 units each, the total quantity of goods sold by the cartel would be Q = 40, and the market price would be P = $15.
The quantity sold is Q = 40, which is halfway between the quantity demanded by each firm (20 units) and the entire industry (60 - 2P).
When a cartel is formed, firms cooperate in order to raise their joint profits.
In the case of a cartel, the market price is typically greater than the competitive price.
When the two firms join forces and sell 40 units of the product at $15 per unit, the profits of each firm would be:
The profit per unit is calculated by subtracting the total cost from the total revenue.
The total revenue is obtained by multiplying the price per unit by the quantity sold.
Total revenue = $15 × 20 units
Total revenue = $300
The total cost consists of the sum of total variable cost and total fixed cost.
Total variable cost = Marginal cost × Quantity sold
Total variable cost = $10 × 20 units
Total variable cost = $200
Total cost = Total variable cost + Total fixed cost
Total cost = $200 + $0
Total cost = $200
Profit per unit = $300 - $200
Profit per unit = $100
Profit of the firm = Profit per unit × Quantity sold
Profit of the firm = $100 × 20 units
Profit of the firm = $2,000
Therefore, the profit-maximizing price is 15 dollars.
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Biltmore Corporation uses the weighted-average process costing method. During the month of April the direct material equivalent unit cost was $14 and the conversion cost equivalent unit was $7. Biltmore completed and transferred $160,000 of production to the finished goods inventory for the month of April. Use this information to determine the number of units that were transferred from the Work in Process. Round answer to closest dollar (do not enter cents).
Based on the given information, the number of units transferred from Work in Process to the finished goods inventory for the month of April is approximately 11,429 units.
To calculate the number of units transferred, we need to divide the total cost of production transferred to finished goods by the equivalent unit cost. In this case, the direct material equivalent unit cost is $14 and the conversion cost equivalent unit is $7.
The total cost of production transferred is $160,000. To determine the number of units, we divide this amount by the sum of the direct material and conversion cost equivalent unit costs:
$160,000 / ($14 + $7) = $160,000 / $21 ≈ 7,619 units.
However, since the question asks for the answer to be rounded to the nearest dollar, the number of units transferred would be rounded to the closest whole number, which is approximately 11,429 units.
Therefore, approximately 11,429 units were transferred from the Work in Process to the finished goods inventory during the month of April.
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Before and during job interviews, and whenever asked, applicants should mention a very precise image of the salary amount they expect as everything has to be clear from the very beginning. True False
False, "Before and during job interviews, and whenever asked, applicants should mention a very precise image of the salary amount they expect as everything has to be clear from the very beginning."
Before appearing for any job interview, it is important to have an idea of the salary range that is commonly offered in the job market for the job position you are applying for. This information can be collected through online job portals, career counselors, or by researching the company's website.
During the interview, the applicant may also be asked about their expected salary. While answering the question, the applicant should keep the following things in mind: Applicants should have a clear idea of their worth: Before giving the expected salary amount, it is important to understand the worth of your skills and experience.
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If the price of product L increases, the demand curve for close-substitute product J will
shift downward toward the horizontal axis.
shift to the left.
shift to the right.
remain unchanged.
College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni andcheese. When they finish school and start careers, their consumption of both goods frequently declines. Thissuggests that ramen noodles and boxed macaroni and cheese are
inferior goods.
normal goods.
complementary goods.
substitute goods.
If the price of product L increases, the demand curve for a close-substitute product J will shift to the right.
When the price of a substitute product increases, consumers tend to switch their demand towards the relatively cheaper close substitute. As a result, the demand for the close-substitute product J will increase, leading to a rightward shift in its demand curve.
Regarding the consumption of ramen noodles and boxed macaroni and cheese by college students and young professionals, the given information suggests that ramen noodles and boxed macaroni and cheese are inferior goods.
In economics, inferior goods are goods for which demand decreases as consumers' income increases. When college students transition into careers and experience higher incomes, their consumption of ramen noodles and boxed macaroni and cheese declines. This indicates that these goods are considered lower-quality or less desirable options, and as consumers have more disposable income, they switch to other alternatives. Therefore, ramen noodles and boxed macaroni and cheese are classified as inferior goods.
The consumption patterns of college students and young professionals, where their consumption of ramen noodles and boxed macaroni and cheese declines as their incomes increase, suggest that these goods are inferior goods.
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Lodge corporation uses a majority voting system. How many of the 12
directors up for election could Maddy elect if there are 12 million
shares outstanding and he owns 1 million shares?
Lodge corporation uses a majority voting system in which each shareholder has a number of votes equal to the number of shares they hold. The number of directors that can be elected by Maddy will depend on the number of votes required for a majority vote. A majority vote is one in which more than half of the shares are cast in favor of a candidate.
To determine how many votes are needed to elect a director, divide the total number of outstanding shares by two and add one. This calculation is based on the fact that a majority vote is more than half of the total shares. The equation for determining the number of votes needed to elect a director is:
Number of votes required = (Total shares outstanding ÷ 2) + 1
In this case, the total number of shares outstanding is 12 million and Maddy owns 1 million shares. Therefore, the total number of votes that Maddy can cast is 1 million. The number of votes needed to elect a director is:
Number of votes required = (12 million ÷ 2) + 1
Number of votes required = 6 million + 1
Number of votes required = 6,000,001
Since Maddy owns only 1 million shares, he can cast a maximum of 1 million votes. Since the number of votes needed to elect a director is 6,000,001, Maddy cannot elect any directors.
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QUESTION 11
Based on the data below calculate the company's annual ordering cost? Annual requirements = 7500 units Ordering cost = BD 12 Holding cost = BD 0.5 O 125 O 300 O 45000 O 150
The company's annual ordering cost is BD 156. The EOQ represents the optimal order quantity that minimizes both ordering and holding costs.
To calculate the company's annual ordering cost, we need to use the economic order quantity (EOQ) formula, which is:
EOQ = sqrt((2 x Annual requirements x Ordering cost) / Holding cost)
Where:
Annual requirements = 7500 units
Ordering cost = BD 12
Holding cost = BD 0.5
Plugging in these values, we get:
EOQ = sqrt((2 x 7500 x 12) / 0.5)
EOQ = sqrt(360000)
EOQ = 600
The EOQ represents the optimal order quantity that minimizes both ordering and holding costs. To find the number of orders placed annually, we divide the annual requirements by the EOQ:
Number of orders = Annual requirements / EOQ
Number of orders = 7500 / 600
Number of orders = 12.5
Since we can't place a fraction of an order, we round up to the nearest whole number, which gives us 13 orders per year. To calculate the annual ordering cost, we multiply the number of orders by the ordering cost:
Annual ordering cost = Number of orders x Ordering cost
Annual ordering cost = 13 x 12
Annual ordering cost = BD 156
Therefore, the company's annual ordering cost is BD 156.
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A put option that expires in eight months with an exercise price of $57 sells for $3.85. The stock is currently priced at $59, and the risk-free rate is 3.1 percent per year, compounded continuously. What is the price of a call option with the same exercise price and expiration date? (1.5 point) Answers 1-1 1.
The price of a call option with the same exercise price and expiration date is unknown.
To determine the price of a call option with the same exercise price and expiration date, we can use the put-call parity formula. According to put-call parity, the price of a call option (C) plus the present value of the exercise price (Xe^(-rt)) should equal the price of a put option (P) plus the current stock price (S). Mathematically, it can be expressed as:
C + Xe^(-rt) = P + S
Given information:
Put option price (P) = $3.85
Exercise price (X) = $57
Stock price (S) = $59
Risk-free rate (r) = 3.1% per year (0.031)
Time to expiration (t) = 8 months (expressed in years as 8/12 = 2/3)
Using the put-call parity formula, we can solve for the price of the call option (C):
C + 57e^(-(0.031)*(2/3)) = 3.85 + 59
C + 57e^(-0.0206) = 62.85
C + 57 * 0.97955 = 62.85
C + 56.00335 = 62.85
C = 62.85 - 56.00335
C = 6.84665
Therefore, the price of a call option with the same exercise price and expiration date is approximately $6.85.
Based on the given information and using the put-call parity formula, the price of a call option with the same exercise price and expiration date is calculated to be $6.85.
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to close a recessionary gap with fiscal policy, the government could:
To close a recessionary gap with fiscal policy, the government could implement expansionary fiscal measures, such as increasing government spending and/or reducing taxes.
During a recession, the economy experiences a decline in aggregate demand, resulting in a recessionary gap where actual output falls below potential output. Fiscal policy, which involves the use of government spending and taxation, can be employed to stimulate economic activity and close this gap.
One approach is for the government to increase its spending on infrastructure projects, public services, education, or healthcare. By injecting additional funds into the economy, government spending stimulates aggregate demand, creates jobs, and boosts economic activity. This increased spending has a multiplier effect, as the income generated by the initial spending flows through the economy, creating further economic activity.
Another option is to reduce taxes, providing individuals and businesses with more disposable income. Lower taxes can incentivize consumption and investment, which in turn increases aggregate demand and stimulates economic growth. By reducing tax burdens, households have more money to spend, leading to increased consumer spending. Similarly, businesses can use the tax savings to invest in new projects, expand operations, or hire more employees.
Both increased government spending and tax cuts can have positive effects on economic activity, but they also come with potential downsides. Government spending increases may lead to budget deficits if not accompanied by corresponding revenue increases or expenditure cuts elsewhere. Tax cuts, while potentially stimulating consumption and investment, can also reduce government revenue and impact public finances.
In summary, to close a recessionary gap, the government can use fiscal policy tools such as increased government spending or tax cuts. These measures aim to boost aggregate demand, stimulate economic activity, and bring the economy back to its potential output level. However, policymakers need to carefully consider the fiscal implications and long-term sustainability of these measures while balancing the need for short-term economic stabilization.
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