Week 1 EVT

Q1. Is a short position of a call option (= writing a call) equivalent to a long position of a put option (=buying a put)? Please explain.


Q2. Explain the similarities and the differences between a forward contract and a futures contract.

Chapter 2
Q3. A company enters into a long futures contract to buy 4,000 bushels of wheat for $2.00 per bushel. The initial margin is $3,000 and the maintenance margin is $2,000.
a. If futures price becomes $2.10 per bushel, calculate the cumulative gain.
b. What futures price change will trigger a margin call?

Chapter 3
Q4. A fund manager has a portfolio worth $20 million with a beta of 1.3. The manager is concerned about the performance of the market over the next two months and plans to use three month futures contracts on the S&P 500 to hedge the risk. The current index level is 2,000 and one futures contract is on 250 times the index (i.e., the index multiplier is 250). The risk free rate is 3.0% per annum and the dividend yield on the index is 2.0% per annum. The current three month futures price is $2,100.
a. What position should the fund manager take to hedge exposure to the market over the next two months? In other words, how many futures contracts does the manager have to buy or sell? Specify whether it’s a long (=buy) or short (=sell) position.
b. Calculate the effect of your strategy on the fund manager’s returns if the index in two months is 1900, 2000, 2100, 2200 and 2300. Assume in 2 months, the one month futures price will be 0.25% higher than the  index level. For example, if the index becomes 2000 two months from now, the index futures price will be 1.0025*2000 = 2005.00.
c. Are the total values (hedged values = stock portfolio plus futures position) always greater than the stock (=unhedged) values, no matter what the index becomes in 2 months? If not, does it mean the hedge was unsuccessful? Explain.
Hint: To answer part b, replicate closely the textbook example in pages 6567. or review week 1 template as we will be discussing a very similar example. In other words, you need to create a spreadsheet similar to Table 3.4.

 

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FNC330 Summer 2014 with working in excel

1)A furniture store has a sofa on sale for $399.00, with the payment due one year from today. The store is willing to discount the price at an annual rate of 9% if you pay today. What is the amount if you pay today.

2) Dividend growth rate is important to many investors. You are considering investing in a firm after looking at the firm’s dividends over a seven-year period. At the end of the year 2002, the firm paid a dividend of $1.35. At year-end 2009, it paid a dividend of $1.84. What was the average annual growth rate of dividends for this firm?

3) In 1930, the highest paid player in major league baseball was Babe Ruth of the New York Yankees, with an annual salary of $80,000. In 2000, the highest paid player in major league baseball player was Alex Rodriguez, also of the New York Yankees, with a salary of $25,000,000. What was the average annual rate of growth in the top baseball salary over this time period?

4) Your employer has agreed to place year-end deposits of $1,000, $2,000 and $3,000 into your retirement account. The $1,000 deposit will be one year from today, the $2,000 deposit two years from today, and the $3,000 deposit three years from today. If your account earns 7% per year, how much money will you have in the account at the end of year three when the last deposit is made?

5) The furniture store offers you no-money-down on a new set of living room furniture. Further, you may pay for the furniture in three equal annual end-of-the-year payments of $1,100 each with the first payment to be made one year from today. If the discount rate is 6%, what is the present value of the furniture payments?

6) Your department at work places $10,000 every year-end into an account earning 5%. The money is used when the corporate office fails to fully finance your profitable projects. The money has not been touched since a first deposit was made exactly six years ago. If the most recent deposit was made today, how much money is currently in the account?

 

7) If you borrow $50,000 at an annual interest rate of 12% for ten years, what is the annual payment (prior to maturity) on a fully amortized loan?

 

8) The Cougar Corporation has issued 20-year semi-annual coupon bonds with a face value of $1,000. If the annual coupon rate is 10% and the current yield to maturity is 14%, what is the firm’s current price per bond?

 

 

9) Your parents have an investment portfolio of $400,000, and they wish to take out cash flows of $50,000 per year as an ordinary annuity. How long will their portfolio last if the portfolio is invested at an annual rate of 4.90%? Use a calculator to determine your answer.

 

10) Johnson Construction Inc. has issued 20-year $1,000 face value, 17% annual coupon bonds, with a yield to maturity of 11%. The current price of the bond is

11) Suppose you invest $1,000 today, compounded quarterly, with the annual interest rate of 5.50%. What is your investment worth in one year?

12) Your firm intends to finance the purchase of a new construction crane. The cost is $1,500,000. What is the size of the annual ordinary annuity payment if the loan is amortized over a six-year period at a rate of 8.50%?

13) The next dividend (Div1) is $1.80, the growth rate (g) is 9%, and the required rate of return (r) is 12%. What is the stock price, according to the constant growth dividend model?

14) You want to invest in a stock that pays $5.00 annual cash dividends for the next four years. At the end of the six years, you will sell the stock for $20.00. If you want to earn 12% on this investment, what is a fair price for this stock if you buy it today?

15) Johnson has an annuity due that pays $600 per year for 15 years. What is the present value of the cash flows if they are discounted at an annual rate of 9.50%?

 

16) Rogue Racing Inc. has $1,000 par value bonds with a coupon rate of 8% per year making semiannual coupon payments. If there are twelve years remaining prior to maturity and these bonds are selling for $896.40, what is the yield to maturity for these bonds?

17) Joe bought a share of stock for $47.50 that paid a dividend of $.92 and sold one year later for $51.38. What was Joe’s dollar profit or loss and holding period return?

18) Consider the following ten-year project. The initial after-tax outlay or after-tax cost is $1,000,000. The future after-tax cash inflows each year for years 1 through 10 are $400,000 per year. What is the payback period without discounting cash flows?

19) Assume the following information about the market and JumpMasters’ stock. JumpMasters’ beta = 1.50, the risk-free rate is 3.50%, the market return is 10.0%. Using the SML, what is the expected return for JumpMasters’ stock?

20) Kip owns the following portfolio of securities. What is the beta for the portfolio?

21) Your investment banking firm has estimated what your new issue of bonds is likely to sell for under several different economic conditions. What is the expected (average) selling price of each bond?

22) Willie’s Western Corp. has outstanding nonconvertible preferred stock (cumulative) that pays a quarterly dividend of $1.65. If your required rate of return is 9.5%, what should you be willing to pay for 1000 shares of Willie’s Western?

23) Lincoln Industries Inc. is considering a project that has an initial after-tax outlay or after-tax cost of $350,000. The respective future cash inflows from its five-year project for years 1 through 5 are $85,000 each year. Lincoln expects an additional cash flow of $50,000 in the fifth year. The firm uses the net present value method and has a discount rate of 10%. Will Lincoln accept the project?

24) In a stream of past dividends, the initial dividend is $1.25 and the most recent dividend is $1.80. The number of years between these two dividends (n) is 9 years. What is the average growth rate during this seven-year period? Use a calculator to determine your answer.

25) Bacon Signs Inc., purchases a machine for $70,000. This machine qualifies as a five-year recovery asset under MACRS with the fixed depreciation percentages as follows: year 1 = 20.00%; year 2 = 32.00%; year 3 = 19.20%; year 4 = 11.52%, etc. The firm has a tax rate of 34%. If the machine is sold at the end of two years for $50,000, what is the cash flow from disposal?

26) Mulligan, Inc. is currently considering an eight-year project that has an initial outlay or cost of $140,000. The cash inflows from its project for years 1 through 8 are the same at $35,000. Mulligan has a discount rate of 13%. Because there is a shortage of funds to finance all good projects, Mulligan wants to compute the profitability index (PI) for each project. That way Mulligan can get an idea as to which project might be a better choice. What is the PI for Mulligan’s current project?

 

27) Find the Modified Internal Rate of Return (MIRR) for the following series of future cash flows, given a discount rate of 11%: Year 0: -$22,000; Year 1: $5,000; Year 2: $6,000; Year 3: $9,000; Year 4: $7,500; and, Year 5: $8,000.

28) Rogers’ Rotors has debt with a market value of $250,000, preferred stock with a market value of $50,000, and common stock with a market value of $750,000. If debt has before-tax cost of 7%, preferred stock a cost of 9%, common stock a cost of 11%, and the firm has a tax rate of 34%, what is the WACC? 28)

 

29) Geronimo, Inc. is considering a project that has an initial outlay or cost of $220,000. The respective future cash inflows from its four-year project for years 1 through 4 are: $50,000, $60,000, $80,000, and $90,000, respectively. Geronimo uses the internal rate of return method to evaluate projects. Will Geronimo accept the project if its hurdle rate is 10%?

30) The initial outlay or cost for a four-year project is $1,000,000. The respective cash inflows for years 1, 2, 3 and 4 are: $500,000, $200,000, $300,000, $300,000. What is the discounted payback period if the discount rate is 10%?

31) Your firm has just issued a 20-year $1,000.00 par value, 10% annual coupon bond for a net price of $984.00. Floatation costs are $15 per bond sold. Tax rate is 30%. What is the after-tax cost of debt? Use a financial calculator to determine your answer.

32) You plan to place a $40,000 down payment on a lake cabin in Northern Minnesota in ten years. If you invest in a long-term CD earning an annual rate of 5.50%, how much would you need to invest today to have enough for the down payment in ten years?

33) Orange Electronics Inc. has a profitability ratio of 0.14, an asset turnover ratio of 1.9, a debt to equity ratio of 0.60 and a total asset to equity ratio of 1.60. What is the firm’s ROE?

34) EBIT is $10,000 and interest expense is $3,000. If the tax rate is 30%, what is the net income?

35) Perfect Purchase Electronics

Selected Income Statement Items, 2009

Cash Sales $1,500,000

Credit Sales $8,500,000

Total Sales $10,000,000

COGS $6,000,000

Using the information provided, what is the collection cycle for the firm?

36) Explain why is financial leverage so important?

37) The chart below gives information for four classes of U.S. securities over the 10-year time period from 1900 – 1999. Order the securities from highest average annual return to lowest for this time period. Now rank the securities from highest to lowest based on risk. Is the information consistent with what financial theory tells us? Why or why not?

38) Assume that today’s date is August 15, 2010 and that the Rite Aid Bond is an annual-coupon bond. Describe what each of the following terms mean and how each value was determined if appropriate. Par value of the bond is $5,000.

In your answer you should also answer the following questions:

a) Calculate the price of the bond in $$?

b) Calculate annual coupon interest payments.

c) Calculate yield to maturity of the bond.

d) Calculate current yield on the bond.

39) Define authorized shares, issued shares, treasury shares, and outstanding shares. Is a company limited in treasury shares that it may own? Briefly explain.

40) Describe callable bonds. In your description, be sure to include in which situation the company will call the bond back?

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Economic value of college majors

Question-1: Summarize the evidence for the 10 worst college majors.

Question-2: Summarize the evidence for the 10 best college majors.

Question-3: Summarize the evidence for the majors with the highest unemployment Rates.

Question-4: Describe how you calculate the economic value of a college major.

Question-5: Describe the microeconomic problem of attending college. use data to make concrete all seven parts of a microeconomic problem.

Question-6: Describe the microeconomic problem of selecting a major. use data to make concrete all seven parts of a microeconomic problem.

Question-7: Analyze your major. Describe its job prospects? How much can you expect to earn? Will you be able to payback your school loans? Are there jobs in Ohio for your major? Also analyze your next best major. Include anything else you believe is important. In answering this question you are conducting cost/benefit analysis.

Question-8: Assume your selected major has a negative net present value of $300,000. Explain the logic of you sticking with it?

Question-9: Assume you return to your high school to speak with graduating seniors, what would you tell them about selecting a college major, use plain English, no micro talk. Make your presentation around 250 words. 

Answer is 2400 words with 7 references and citations.

 

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Marginal Productivity Paper and discussion

Write 1,000-1,500 word paper in which you define what the concept of marginal productivity is, while applying it to several examples and applications.

Discussion Question
Describe the relationship between the number of inputs and the law of diminishing marginal productivity.
In more than 200 words.

 

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Westfield Marketing Plan -Complete

Westfield LLC (Mall developer) going to tap into Indian Market. Westfield is planning to open shopping mall in Gurgaon. 
1.0 Executive Summary
2.0 Situation Analysis
2.1 Market Summary
2.2 SWOT Analysis
2.3 Competition
2.4 Product (Service) Offering
2.5 Keys to Success
2.6 Critical Issues
3.0 Marketing Strategy 
3.1 Mission
3.2 Marketing Objectives 
3.3 Financial Objectives
3.4 Target Markets
3.5 Positioning
3.6 Strategies
3.7 Marketing Mix 
3.8 Marketing Research
4.0 Controls
4.1 Implementation
4.2 Marketing Organization
4.3 Contingency Planning

5.0 Conclusion

24 pages with 11 references and citations.

 

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Cases and assignments

***************** BM350 Case-11 Harley Davidson******************
BM350 Marketing Management
Directions: Your response should be a minimum of one (1) single-spaced page to a maximum of two (2) pages in length; refer to the “Assignment Format” page for specific format requirements. Case 11: harleydavidson.com and the Global Motorcycle Industry (pp. 354-358) This case discusses the success of Harley-Davidson and reviews its global position in 1998. It discusses the company’s initiatives that continued a thirteen-year record of growth in revenues and earnings. The company had a phenomenal 74 percent increase in the value of the firm in 1998 alone. It offers market share and sales information for global competitors in three regions, North America, Europe, and Asia/Pacific, and briefly discusses the product offerings of competitors including BMW, Honda, Kawasaki, Suzuki, and Yamaha. The case has been kept relatively short since the Web sites for Harley and its competitors contain abundant additional information. The major objective of the case is to get you to visit these Web sites, compare them, and evaluate them as strategic marketing tools
Questions
1. Why is the Internet a particularly good promotion medium for Harley-Davidson? Discuss at least three (3) reasons. (55 points)
2. What different roles could Harley-Davidson’s Web site play for Harley owners, for people shopping for a motorcycle, and for people just interested in motorcycles in general? (45 points)

*********************** BM350 Case-22 Cowgirl Chocolates ***************
Case 22: Cowgirl Chocolates (pp. 488-500)
Marilyn Lysohir, an internationally celebrated ceramic artist, started Cowgirl Chocolates to provide some funding support for a yearly published arts magazine, High Ground, that she and her husband, Ross Coates, started in 1995. Her love of chocolates and hot and spicy foods spurred the idea of making hot and spicy chocolates to be sold in creative, artistic tins and packaging, which she labeled Cowgirl Chocolates. Her small business, begun in 1997, had won a number of awards in fiery food competitions. While Cowgirl Chocolates had grown steadily over its four years in business, it still had only generated $30,000 in sales revenue in 2000, which was not enough to cover expenses. Marilyn had drained much of her personal savings to keep Cowgirl Chocolates in business. Her cash accounting methods and record keeping were not very sophisticated although she seemed to have a good sense of her costs in production and raw materials and the packaging. However, Marilyn had taken a shotgun approach to most of her marketing efforts and had tried a number of activities to increase product demand. She allowed herself to make one risky financial move each year in her pursuit of profitability and increased sales. She had just made her one risky move for year 2001: She had taken out a full-page ad in Chile Pepper magazine for $3,000.

Questions 
1. The suggested retail price and wholesale prices of Cowgirl Chocolates products are displayed in Exhibit 2 (p. 491) along with the product and packaging costs. Based on this information, discuss the relative merits of using a cost-based, demand-based, and competition-based pricing method. (50 points)
2. What are four (4) options that Cowgirl Chocolates may consider as far as pricing? What would you recommend? (50 points)

************ BU450 Leadership Skills Assignment-4 charismatic leadership **********
BU450 Leadership Skills
Directions: Your response should be a minimum of one (1) single-spaced page to a maximum of two (2) pages in length; refer to the “Assignment Format” page for specific format requirements.

Part A: What is charismatic leadership? 
Part B: Explain what is meant by the statement that charismatic leaders use active impression management with their followers to support their image. Provide and elaborate on one example. 
Part C: Why is charismatic leadership considered a double-edged sword that requires careful monitoring to avert abuse?

********** BU450 Assignment-7 Leadership Skills Delegation *****************
BU450 Leadership Skills
Directions: Your response should be a minimum of one (1) single-spaced page to a maximum of two (2) pages in length; refer to the “Assignment Format” page for specific format requirements.

Part A: List and define five (5) potential benefits of delegation.

Part B: List and describe the seven (7) guidelines for good delegation.

Part C: Discuss why one of the major complaints of subordinates regarding delegation is the issue of dumping. Offer an example of a personal experience or observation of dumping taking place.

********* BU470 Strategic Management Assignment-03 Timber King **********
Directions: Sources must be cited in APA format. Your response should be a minimum of (1) single-spaced page to a maximum of (2) pages in length; refer to the “Assignment Format” page for specific format requirements.

Timber King is a new Midwest company in the portable saw mill industry. You have been asked to give Edward Perry, Timber King’s new CEO, general advice and guidelines to assist him in doing an external analysis of the portable saw mill industry. 

Part A: Explain three benefits of conducting an external analysis.

Part B: Educate Mr. Perry on some of the challenges of conducting an external analysis. 

Part C: Explain the two perspectives on the environment. 

Part D: Explain the primary responsibility of Mr. Perry’s managers in conducting external analysis.

****** BU470 Strategic Management Assignment-07 Terry Wilson ******************
Assignment-7
Terry Wilson, a seasoned marketing veteran, has recently decided to explore growth options for Tuscan Treasures, an importer of Italian furniture. Profits are declining and Mr. Wilson must decide whether to downsize or expand to improve the situation. You have been asked to advise Mr. Wilson on which growth strategy would best aid Tuscan Treasures should he chose that route. You have also been asked to provide Mr. Wilson with a better understanding of why profits have been down recently, including possible causes of the decline. He also wants to know what he would need to do if he decides to downsize he operation.

Part A: Provide Mr. Wilson with three possible growth strategies. 

Part B: What are the possible causes of his company’s decline? 

Part C: What are some recommendations for handling a downsizing? 

****** BU480 eBusiness Strategy Assignment-4 Internet effect on planning ************
BU480 eBusiness Strategy
Directions: Your response should be a minimum of one (1) single-spaced page to a maximum of two (2) pages in length; 

Explain the Internet’s effects on planning by how it influences 1) the motivation for planning, 2) the processes for planning, and 3) the outcomes of planning. Be sure to give complete explanations of each effect, using examples in your discussion.

******* BU480 eBusiness Strategy Assignment-7 B2B Exchange ***********
BU480 eBusiness Strategy
Directions: Your response should be a minimum of one (1) single-spaced page to a maximum of two (2) pages in length; refer to the “Assignment Format” page for specific format requirements.

Describe each of the three (3) business-to-business (B2B) exchanges. For each exchange type, discuss how the Internet acts as a resource in the exchange. 

********* BU490 Business Ethics Assignment-3 Six steps *********
BU490 Business Ethics
Directions: Your response should be a minimum of one (1) single-spaced page to a maximum of two (2) pages in length; refer to the “Assignment Format” page for specific format requirements.
What are the six steps that a board of an organization can take to become effective?

****** BU490 Business Ethics Assignment-6 Business ethics-electronic monitoring ******
BU490 Business Ethics
Directions: Your response should be a minimum of one (1) single-spaced page to a maximum of two (2) pages in length; refer to the “Assignment Format” page for specific format requirements.
Discuss the employer and employee position on electronic monitoring at the workplace. 

 

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Sharpe case

Cash budget) The Sharpe Corporation’s projected sales for the first eight months of 2011

are as follows:

January $ 89,800 May $300,100

February 120,000 June 270,100

March 136,000 July 225,800

April 240,900 August151,000

 

Of Sharpe’s sales, 10 percent is for cash, another 60 percent is collected in the month following sale, and 30 percent is collected in the second month following sale. November and December sales for 2010 were $219,200 and $175,600, respectively.

Sharpe purchases its raw materials two months in advance of its sales equal to 60 percent of their final sales price. The supplier is paid one month after it makes delivery. For example, purchases for April sales are made in February and payment is made in March.

In addition, Sharpe pays $9,100 per month for rent and $20,700 each month for other expenditures.

Tax prepayments of $23,000 are made each quarter, beginning in March.

The company’s cash balance at December 31, 2010, was $21,600; a minimum balance of $15,000 must be maintained at all times. Assume that any short-term financing needed to maintain the cash balance is paid off in the month following the month of financing if sufficient funds are available.

Interest on short-term loans (11 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. Thus, if in the month of April the firm expects to have a need for an additional $60,910, these funds would be borrowed at the beginning of April

with interest of $558 (11% × 1/12 × $60,910) owed for April and paid at the beginning of May.

 

a. Prepare a cash budget for Sharpe covering the first seven months of 2011.(nov sales = $219,200; dec sales = $175,600; jan sales = $89,800;

b. Sharpe has $199,800 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have sufficient cash to repay the notes?

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