(a) The European call option value with a strike price of $45 that is expiring in 1-year is $13.54. (b) The time-premium of the option is $8.54. (c) To create a delta-hedged portfolio, we need to sell 2.7275 shares of stock. (d) The value of the option today is $10.23 and the probability the option is exercised is 0.815.
(a) To value the European call option using a two-step Binomial Tree, we first need to calculate the value of the stock at each node.
Step 1: Calculate the value of the stock at each node:
At time 0, the stock is trading at $50
At time 0.5, the stock could either go up to $50 * 1.2 = $60 or down to $50 * 0.8333 = $41.665
At time 1, the stock could either go up to $60 * 1.2 = $72, stay at $60, or go down to $41.665 * 0.8333 = $34.722
Step 2: Calculate the payoff of the option at each node
At time 1, the payoff of the option is max(0, $72 - $45) = $27, max(0, $60 - $45) = $15, and max(0, $34.722 - $45) = $0
Step 3: Calculate the value of the option at each node using the risk-neutral probabilities
The risk-neutral probabilities are p = (1 + r - d) / (u - d) = (1 + 0.03 - 0.8333) / (1.2 - 0.8333) = 0.5455 and 1 - p = 0.4545
The value of the option at time 0.5 is (0.5455 * $27 + 0.4545 * $15) / (1 + 0.03) = $20.41 and (0.5455 * $15 + 0.4545 * $0) / (1 + 0.03) = $7.69
The value of the option at time 0 is (0.5455 * $20.41 + 0.4545 * $7.69) / (1 + 0.03) = $13.54
Therefore, the value of the European call option with a strike price of $45 that is expiring in 1-year is $13.54.
(b) The time-premium of the option is the difference between the value of the option and the intrinsic value of the option. The intrinsic value of the option is max(0, $50 - $45) = $5. Therefore, the time-premium of the option is $13.54 - $5 = $8.54.
(c) To create a delta-hedged portfolio today, we need to calculate the delta of the option and then sell the appropriate amount of stock to offset the delta. The delta of the option is (0.5455 * $20.41 - 0.4545 * $7.69) / ($60 - $41.665) = 0.5455. Therefore, to create a delta-hedged portfolio, we need to sell 0.5455 * 5 = 2.7275 shares of stock.
(d) Using the Black-Scholes formula, the value of the option today is $50 * N(d1) - $45 * e^(-0.03) * N(d2) = $50 * N(1.037) - $45 * e^(-0.03) * N(0.897) = $10.23. The probability the option is exercised is N(d2) = N(0.897) = 0.815.
Learn more about Strike price:
https://brainly.com/question/15571230
#SPJ11
a. Alex Bradford wants to start his own business in 12 years, and he plans to save funds to invest in the
business. He has determined that he can save $10,000 per year for 12 years at 8.5 percent interest. If
the first $10,000 deposit isn’t made until one year from today, how much money will he have in 12
years when he starts his business? How much would he have if he deposits the first $10,000 today?
b. Frank Wade knows that a security will provide a return of 10 percent per year, it will cost $68.30, and
he will receive $100 at maturity. In how many years does the security mature?
Please answer both the questions. It's a request, please.
The Accumulated Sum = $160,960.83
How to solve
Given that:
Annual Deposit = $10,000Time Period = 12 yearsInterest Rate = 8.50%If first deposit is made in one year:
Accumulated Sum = $10,000*1.0850^9 + $10,000*1.0850^8 + … + $10,000*1.0850 + $10,000
Accumulated Sum = $10,000 * (1.0850^10 - 1) / 0.0850
Accumulated Sum = $10,000 * 14.8350993
Accumulated Sum = $148,350.99
If first deposit is made today:
Accumulated Sum = $10,000*1.0850^10 + $10,000*1.0850^9 + … + $10,000*1.0850^2 + $10,000*1.0850
Accumulated Sum = $10,000 * 1.0850 * (1.0850^10 - 1) / 0.0850
Accumulated Sum = $10,000 * 16.0960828
Accumulated Sum = $160,960.83
Read more about ledgers here:
https://brainly.com/question/17143087
#SPJ1
Mr. Rahim, one of your friends is in opinion that a Government,irrespective of nature, have to exercise its power rigorously toimplement its taxation policy. Will you stand with your friend?
No, I will not stand with my friend's opinion that a government should exercise its power rigorously to implement its taxation policy.
It is important for a government to be fair and just in its implementation of taxation policies. Exercising power rigorously can lead to unequal treatment of citizens and can potentially harm those who are already struggling financially. It is important for a government to take into consideration the needs and circumstances of its citizens when implementing taxation policies. Additionally, a government should be transparent and accountable in its use of taxation revenue in order to maintain trust and support from its citizens.
Learn more about taxation policy : https://brainly.com/question/1133253
#SPJ11
1.10 What is computer integrated manufacturing? 1.11 What are some of the reasons why companies automate their operations? Nine reasons are given in the text. 1.12 Identify three situations in which manual labor is preferred over automation.
1.10 Computer Integrated Manufacturing (CIM) is the process of using computers to control and coordinate all aspects of manufacturing, including design, production, and distribution. It involves the use of computer-aided design (CAD), computer-aided manufacturing (CAM), and computer-aided engineering (CAE) software to automate the entire manufacturing process.
1.11 Companies automate their operations for a variety of reasons, including:
- To increase productivity and efficiency
- To reduce labor costs
- To improve product quality and consistency
- To reduce waste and scrap
- To increase flexibility and customization
- To improve safety and reduce the risk of injury
- To reduce downtime and maintenance costs
- To improve inventory management and control
- To increase competitiveness and profitability
1.12 There are some situations in which manual labor is preferred over automation, including:
- When the task requires creativity, judgment, or critical thinking
- When the task involves complex or unpredictable situations that are difficult to automate
- When the cost of automation is too high or the technology is not available
To know more about Automate Operation
https://brainly.com/question/29624150
#SPJ11
Case: Pharmacy Service Improvement at CVS(A)
1. Explain the value chain of the industry in which CVS works.
2. What are primary business problems that CVS is facing, in the context of the case.
3. Explain the causes for the business problems facing CVS.
The value chain of the pharmacy industry includes activities such as drug research and development, manufacturing, distribution, dispensing, and patient care (Question 1).
The primary business problems that CVS is facing are declining profitability, increased competition, and customer dissatisfaction with their pharmacy services (Question 2).
The causes of CVS's business problems include a changing industry landscape, inadequate staffing and training, and poor communication and coordination among employees (Question 3).
The Explanation for Each Answer(1) The pharmacy industry value chain starts with drug research and development, followed by manufacturing and distribution of drugs to wholesalers, then dispensing of drugs to patients through pharmacies, and finally patient care services. Each activity adds value to the chain, from drug development to patient care.Learn more about Cvs pharmacy https://brainly.com/question/5230836
#SPJ11
What is the bond equivalent yield of a U.S. Treasury bill with
108 days to maturity quoted at a discount yield of 1.47 percent?
Answer in percent to four decimals.
The bond equivalent yield of the U.S. Treasury bill with 108 days to maturity quoted at a discount yield of 1.47 percent is 4.9629%.
The bond equivalent yield (BEY) is a calculation that allows investors to compare the return on a bond investment to the return on a Treasury bill investment. It is calculated by dividing the discount yield by the number of days to maturity and multiplying by 365.
To calculate the BEY for the U.S. Treasury bill in the question, we can use the following formula:
BEY = (Discount Yield / Days to Maturity) x 365
Plugging in the given values, we get:
BEY = (1.47 / 108) x 365
BEY = 4.9629%
Therefore, the bond equivalent yield of the U.S. Treasury bill with 108 days to maturity quoted at a discount yield of 1.47 percent is 4.9629%.
For more about bond equivalent:
https://brainly.com/question/14644574
#SPJ11
After graduation from high school in June, you and three classmates plan to travel around the United States. The plan is to visit the capital cities of all 48 contiguous states, taking numerous pictures along the way. The Sunnyside Camera Shop offers to give you a dozen rolls of 36-exposure color film for the trip free if you agree to let it develop and print all the rolls you use, for a stated price per roll. You agree. Are both you and the Sunnyside Camera Shop legally bound? What is the consideration for each party?
Answer:
Yes, both you and the Sunnyside Camera Shop are legally bound. The consideration for you is the free rolls of 36-exposure color film, and the consideration for the Sunnyside Camera Shop is the agreement to develop and print all the rolls you use for a stated price per roll.
It has three types of jeans all of which require the same production facilities. Estimates for the next month have been made as follows: Product X Y Z £ £ £ Selling price per unit (£) 200 150 120The same machine is used to produce all three products and hence, fixed cost is not affected. The business has a machine time capacity of 30,000 hours per month Total fixed cost per month is £54,000. Required: A) With supported workings, show which combination of products to be produced to achieve the highest profit for the company. Clearly show your workings which show the no of units to be produced, total contribution and total profit/(Loss).
In order to achieve the highest profit, the company should produce Product X. The number of units to be produced is 10,000, the total contribution is £2,000,000, and the total profit is £1,946,000.
To find the combination of products that will result in the highest profit:
1. First we need to calculate the contribution margin for each product. The contribution margin is the difference between the selling price and the variable cost of a product.
Contribution Margin = Selling Price - Variable Cost
Product X:
Contribution Margin = £200 - £0 = £200
Product Y:
Contribution Margin = £150 - £0 = £150
Product Z:
Contribution Margin = £120 - £0 = £120
2. Next, we need to calculate the number of units that can be produced with the available machine time. Since all three products require the same production facilities, we can assume that they all require the same amount of machine time. Therefore, we can divide the total machine time by the number of products to find the number of units that can be produced for each product.
Number of Units = Total Machine Time / Number of Products
Number of Units = 30,000 / 3 = 10,000 units
3. Now we can calculate the total contribution for each product by multiplying the contribution margin by the number of units.
Total Contribution = Contribution Margin * Number of Units
Product X:
Total Contribution = £200 * 10,000 = £2,000,000
Product Y:
Total Contribution = £150 * 10,000 = £1,500,000
Product Z:
Total Contribution = £120 * 10,000 = £1,200,000
4. Finally, we can calculate the total profit for each product by subtracting the total fixed cost from the total contribution.
Total Profit = Total Contribution - Total Fixed Cost
Product X:
Total Profit = £2,000,000 - £54,000 = £1,946,000
Product Y:
Total Profit = £1,500,000 - £54,000 = £1,446,000
Product Z:
Total Profit = £1,200,000 - £54,000 = £1,146,000
Based on these calculations, the company should produce Product X to achieve the highest profit. The number of units to be produced is 10,000, the total contribution is £2,000,000, and the total profit is £1,946,000.
Learn more about Profit:
https://brainly.com/question/23706629
#SPJ11
3. If a firm goes from zero debt to successively higher levels
of debt, why would you expect its stock price to rise at first,
then hit a peak, and then begin to decline?
A firm increases its debt levels, its stock price may rise at first, reach a peak, and then begin to decline.
The stock price of a firm is typically directly correlated to the amount of debt that a firm holds. As the debt of a firm increases, the stock price may initially rise due to increased financial leverage.
However, at a certain point, the increased debt can signal that the firm may be taking on too much risk, which could lead to a decrease in the stock price.
1. As the firm takes on more debt, it is able to leverage its assets to generate more profits. This leads to an increase in the stock price as investors see the potential for higher returns.
2. However, as the level of debt continues to increase, the firm becomes more risky. This is because the firm has to pay interest on the debt, which reduces the amount of profits available to shareholders. As a result, the stock price may hit a peak and then begin to decline.
3. Additionally, if the firm's level of debt becomes too high, it may face difficulty in meeting its debt obligations. This can lead to a decline in the stock price as investors become concerned about the firm's ability to repay its debt.
TO know more about stock price here:
https://brainly.com/question/29997372#
#SPJ11
Cincinnati Super Subs is one of the larger Super Subs outlets, a chain of 300 take-away restaurants in Indiana, Ohio and Michigan. This outlet has a restaurant manager, an assistant manager, and several part-time team leaders. The restaurant manager rarely has time to serve customers and frontline work by managers is discouraged by the head office. The assistant manager serves customers for a couple of hours during the busy lunch-time but otherwise assists the restaurant manager with purchasing, accounts, hiring and other operations. Most team leaders are college students and serve customers alongside other employees, particularly from late afternoon to night closing. Most employees are also students who work part-time, a few are in high school. All regular staff earn minimum pay rates.
Cincinnati Super Subs has experienced below-average profitability over the past 18 months, which has reduced the monthly bonus paid to the restaurant manager and assistant manager. This bonus is calculated by percentage of "wastage" (unsold, damaged or unaccounted for food and drinks) relative to sales; the lower the percentage of wastage, the higher the bonus. Wastage occurs when employees drop or spill food, cut up more toppings than are sold, burn heated subs, prepare an order incorrectly and eat or give away food without permission. When employees make mistake, the expense is supposed to come out of their pay-check. Unauthorized eating and giving away food are ground s for immediate dismissal. However, team leaders are reluctant to report any accidental or deliberate wastage, even when confronted by the restaurant manager about the store’s high wastage over the previous week and month. One team leader who reported several accidental wastage incidents eventually quit after being snubbed by coworkers who attended the same college classes.
Cincinnati Super Subs gives employees a food allowance if they work continuously for a least four and one half hours. Staff complain that the allowance is meagre and that they are often ineligible for the food allowance because many shifts are only three or four hours. Employees who work these shorter shifts sometimes help themselves to food and drinks
when the managers aren’t around, claiming that their hard work justifies the free meal. Some also claim the food is a low company expense and makes up for their small paycheck, relative to what many of their friends earn elsewhere. Several (but not most) employees give some of their friends generous helpings as well as occasional free soft drinks and chips. Employees say handing out free food to friends makes them more popular with their peers.
Five month ago, the Cincinnati restaurant’s wastage (mainly deliberate wastage) had risen to the point where the two managers no longer received a bonus. The restaurant managers reacted by giving the food allowance only to those who work for six or more hours in a single shift. This action excluded even more staff from receiving the food allowance, but it did not discourage employees from eating or giving away food. However, almost 20 percent of the experienced college staff left for other jobs over the following two months. Many of those who stayed discouraged friends from considering jobs at Super Subs. Morale declined, which dampened the fun atmosphere that had been experienced to some extent in past times. Relations between employees and managers soured further.
With relatively low unemployment, the restaurant manager found it difficult to hire replacement, particularly manager found it difficult to hire replacement, particularly people with previous work experience of any kind. Temporary staff shortages required the two managers to spend more time working in food preparation and training the new staff. Their increased presence in the restaurant significantly reduced deliberate wastage, but accidental wastage increased somewhat as the greater number of inexperienced staff made more mistakes.
After three months, Cincinnati Super Subs’ manager and assistant manager were confident that the situation had improved, so they spent less time training staff and serving customers. Indeed, they received a moderate bonus after the third month in the store. However, wastage increased again soon after the managers withdrew from daily operations. The experienced employees started eating more food and the new staff soon joined this practice. Exasperated, the restaurant manager took bolder steps. He completely removed the food allowance and threatened to fire any employee caught consuming of giving away food.Wastage dropped somewhat over the next month but is now creeping upward again,
(Source: McShane, S. L and Von Glinow, M. A. (2018). Organizational Behaviour, McGraw-Hill).
Questions
2) What are the main causes of these symptoms?
The main symptoms of the problems at Cincinnati Super Subs are below-average profitability, high wastage, low morale, and high employee turnover. These symptoms are caused by several factors, including Poor management practices, Inadequate compensation,Lack of accountability,Poor employee relations.
1) Poor management practices: The restaurant manager and assistant manager rarely have time to serve customers and frontline work by managers is discouraged by the head office. This means that they are not able to closely monitor employee behavior and prevent wastage.
2) Inadequate compensation: All regular staff earn minimum pay rates and the food allowance is meager and often ineligible for employees working shorter shifts. This leads to employees feeling undervalued and more likely to engage in wastage behavior as a way to compensate for their low pay.
3) Lack of accountability: Team leaders are reluctant to report any accidental or deliberate wastage, even when confronted by the restaurant manager about the store’s high wastage. This lack of accountability allows wastage to continue unchecked.
4) Poor employee relations: The restaurant manager and assistant manager have taken a heavy-handed approach to dealing with wastage, including removing the food allowance and threatening to fire employees. This has led to low morale and high employee turnover, which in turn has led to increased wastage due to inexperienced staff making more mistakes.
For such more questions on below profitability:
brainly.com/question/29344041
#SPJ11
Calton plc's budget shows BWP 2 million cost to construct a mall in London on the 30 April 2020. The mall is to be constructed in twelve months. A bank loan amounting to BWP 2 million with 18% interest was negotiated from Stanbic Bank strictly for constructing a mall, interest on surplus funds is 15% per annum. The loan capital is repayable in five (5) years. On the 30 April 2021, it was estimated that the company incurred a total cost of BWP1,2 million to construct the building. Let us assume the cost was incurred evenly throughout the year.
REQUIRED Calculate the interest income and loan interest to be capitalised
The interest income to be capitalised is BWP 120,000 and the loan interest to be capitalised is BWP 120,000.
To calculate the interest income and loan interest to be capitalised for Calton plc, we need to use the following formula:
Interest income = Surplus funds × Interest rate × Time periodFinally, we need to calculate the amount of interest to be capitalised. This is the lesser of the interest income and the loan interest, which is BWP 120,000. So, the interest to be capitalised is:
Interest to be capitalised = BWP 120,000
Learn more about income: https://brainly.com/question/28390284
#SPJ11
explain why certain companies want to be listed on the stock exchange. award two marks
There are several reasons why companies may want to be listed on the stock exchange:
1. Access to Capital: Companies can raise capital by selling shares of their company on the stock exchange. This can help them fund new projects, expand their business, or pay off debt.
2. Increased Visibility and Prestige: Being listed on a stock exchange can increase a company's visibility and credibility in the eyes of investors, customers, and suppliers. This can enhance the company's reputation and lead to new business opportunities.
3. Liquidity: Once a company is listed on the stock exchange, its shares can be bought and sold by investors on the open market. This can provide shareholders with liquidity, or the ability to convert their shares into cash quickly and easily.
4. Employee Benefits: Stock options and other equity-based compensation can be used to attract and retain talented employees. Being listed on a stock exchange can provide a market for these options, which can increase their value and provide additional benefits to employees.
5. Expansion Opportunities: Being listed on a stock exchange can provide a platform for companies to expand globally, attract international investors, and potentially acquire other companies.
Overall, being listed on a stock exchange can provide many benefits to companies, including access to capital, increased visibility, liquidity, and expansion opportunities. However, being listed on a stock exchange also comes with additional regulatory requirements and public scrutiny, which can be costly and time-consuming for companies to manage. Therefore, companies should carefully consider the advantages and disadvantages of listing on a stock exchange before making a decision.
I am applying for student investment fund and wanted help in regarding these questions.
If you could write a example of them it would be a great help.
thank you
Please answer the following questions in 1-2 pages:
1. What about the Student Investment Fund experience has attracted you to apply?
2. Provide a previous example/situation in which you exemplified the skills of time management, perseverance and/or another trait you believe necessary for this fund.
3. What current and upcoming events have and will likely affect the financial markets in the coming months? Provide reasons for your predictions and the anticipated effects on domestic and global securities markets.
1.I am attracted to the Student Investment Fund because it provides a unique opportunity to build skills and knowledge n the areas of finance and investing.
2. Provide a previous example/situation in which you exemplified the skills of time management, perseverance and/or another trait you believe necessary for this fund.
3.Currently, the global economy is being affected by the novel coronavirus pandemic.
I am passionate about developing an understanding of the financial markets and how they affect everyday life. Additionally, I am excited to have the chance to apply my analytical and problem-solving skills to challenging situations.
In a previous project I was assigned to, I had to develop a plan for a new product launch. I needed to coordinate with different stakeholders and track progress on a daily basis. To do this, I developed a timeline and checklist, managed time efficiently and communicated updates with stakeholders on a regular basis. Through this process, I demonstrated strong time management and perseverance.
This has resulted in increased volatility and uncertainty in the markets, with many investors choosing to reduce risk by pulling back on investments. In the coming months, the markets will be affected by a variety of economic and political events, including the outcome of the 2020 U.S. election, the progress of stimulus measures, the progress of vaccine development, and more. These events could cause significant changes in market sentiment and prices. It is expected that domestic and global securities markets will remain volatile in the coming months, and investors should be mindful of potential risks.
To know more about investment click on below link:
brainly.com/question/15105766#
#SPJ11
When a researcher selects the most accessible population members from whom to collect information, he/she is using --- sampling procedure. *ClusterJudgementConvenience2. According to ----- Random sampling procedure, a researcher first selects a member of the population on a random basis and then every Nth (e.g. 5th or 7th) person is elected. *StratifiedClusterSystematicSimpleStratified3. Which of the following is True about Nature of Personality? *All of them are not nature of personalityPersonality is consistent and enduringPersonality reflects Individual similaritiesPersonality cannot change4.Which of the following one is not true about materialistic people? *Lifestyle full of possessionsTheir possessions give them satisfactionSelfish and self-centeredShowing of possessions
1. When a researcher selects the most accessible population members from whom to collect information, he/she is using Convenience. sampling procedure.
2. According to systematic random sampling procedure, a researcher first selects a member of the population on a random basis and then every Nth (e.g. 5th or 7th) person is elected.
3. One thing that is true about personality is Personality is consistent and enduring.
4. The correct answer is their possessions give them satisfaction.
1. When a researcher selects the most accessible population members from whom to collect information, he/she is using convenience sampling procedure. This type of sampling is used when the researcher wants to collect data quickly and easily.
2.This type of sampling is used when the researcher wants to ensure that the sample is representative of the population.
3. This is one of the key characteristics of personality, which is the unique and relatively stable pattern of thoughts, feelings, and behaviors that define an individual.
4. Materialistic people are typically more focused on acquiring and showing off possessions than on the satisfaction they get from those possessions. They may be selfish and self-centered, and their lifestyle may be full of possessions, but the satisfaction they get from those possessions is not a defining characteristic of materialistic people.
For such more question on Convenience:
https://brainly.com/question/7184191
#SPJ11
Complete the following sentence.
A traditional cover letter's format includes an introduction, a ______ and a ______ paragraph.
Answer:
body, closing
That was easy
Explanation:
The purpose of synthesizing information is to:
prove that your facts are the most relevant facts to support your thesis or claim.
think critically about information from many sources and use that evidence to support a claim, thesis or larger idea that may not be stated directly (but you can show us through evidence how you came to your big, new idea).
state one fact from one source to focus on one detail to support a claim, main idea, or thesis.
Students can combine information from several sources by information synthesising it. When these sources are merged, a single, coherent notion is produced. This is often how students are introduced to new concepts, theories, and knowledge in the classroom.
What is the information that is being synthesised?Information synthesis is the act of reviewing and comparing data from diverse sources, drawing connections between the data, and fusing the newly discovered data with previously known data to produce something new.
As you synthesise knowledge, you select particular concepts and take them into account in order to comprehend how they compare, contrast, and relate to one another. To produce a whole through synthesis, many components are combined.
To know more about synthesise information visit:
https://brainly.com/question/30035878
#SPJ1
(10 Marks) Gerry likes driving small cars and buys nearly identical ones whenever the old one needs replacing. Typically, he trades in his old car for a new one costing about $15 000. A new car warranty covers all repair costs above standard maintenance (standard maintenance costs are constant over the life of the car) for the first two years. After that, his records show an average repair expense Cover standard maintenance) of $2500 in the third year (at the end of the year), increasing by 50 percent per year thereafter. If a 30 percent declining balance depreciation rate is used to estimate salvage values and interest is 8 percent, how often should Gerry get a new car?
To determine how often Gerry should get a new car, we need to calculate the total cost of ownership for different lengths of time and compare them to find the lowest cost option.
The total cost of ownership includes the purchase price of the car, the salvage value, and the repair costs.
First, let's calculate the salvage value of the car for different lengths of time using the 30% declining balance depreciation rate:
Year 1: $15,000 - ($15,000 * 0.30) = $10,500
Year 2: $10,500 - ($10,500 * 0.30) = $7,350
Year 3: $7,350 - ($7,350 * 0.30) = $5,145
Year 4: $5,145 - ($5,145 * 0.30) = $3,601.50
Next, let's calculate the repair costs for different lengths of time:
Year 1: $0 (covered by warranty)
Year 2: $0 (covered by warranty)
Year 3: $2,500
Year 4: $2,500 + ($2,500 * 0.50) = $3,750
Now, let's calculate the total cost of ownership for different lengths of time:
Year 1: $15,000 - $10,500 + $0 = $4,500
Year 2: $15,000 - $7,350 + $0 = $7,650
Year 3: $15,000 - $5,145 + $2,500 = $12,355
Year 4: $15,000 - $3,601.50 + $3,750 = $15,148.50
Finally, let's compare the total cost of ownership for different lengths of time to find the lowest cost option:
Year 1: $4,500
Year 2: $7,650
Year 3: $12,355
Year 4: $15,148.50
The lowest cost option is to get a new car every year, with a total cost of ownership of $4,500. Therefore, Gerry should get a new car every year to minimize his total cost of ownership.
To know more about depreciation rate
https://brainly.com/question/30531944
#SPJ11
Assume you are nearing graduation and you have applied for a job with a local bank. Part of the bank’s evaluation process re- quires you to take an examination that covers several financial analysis techniques. The first section of the test addresses time value of money analysis. See how you would do by answering the following questions:
a)
(1) What is the future value of an initial $100 after three years if it is invested in an account paying 10 percent annual interest?
(2) What is the present value of $100 to be received in three years if the appropriate interest rate is 10 percent?
b)
(1) What is the future value of a three-year ordinary annuity of $100 if the appropriate interest rate is 10 percent?
(2) What is the present value of the annuity?
(3) What would the future and present values be if the annuity were an annuity due?
c)
What is the present value of the following uneven cash flow stream? The appropriate interest rate is 10 percent, compounded annually.
a) the future value of an initial $100 after three years is $133.10 , the present value of $100 to be received in three years is $75.13 .b) The future value of a three-year ordinary annuity of $100 is $331 , The present value of the annuity is $249.the future and present values be if the annuity were an annuity due is $273.90. c) the present value of the following uneven cash flow stream is $481.59.
a) (1) The future value of an initial $100 after three years if it is invested in an account paying 10 percent annual interest can be calculated using the formula
FV = PV (1 + r)^n,
where FV is the future value, PV is the present value, r is the interest rate, and n is the number of periods.
FV = $100 (1 + 0.10)^3 = $100 (1.10)^3 = $100 (1.331) = $133.10
(2) The present value of $100 to be received in three years if the appropriate interest rate is 10 percent can be calculated using the formula
PV = FV / (1 + r)^n,
where FV is the future value, PV is the present value, r is the interest rate, and n is the number of periods.
PV = $100 / (1 + 0.10)^3 = $100 / (1.10)^3 = $100 / 1.331 = $75.13
b)
(1) The future value of a three-year ordinary annuity of $100 if the appropriate interest rate is 10 percent can be calculated using the formula
FV = PMT [((1 + r)^n - 1) / r],
FV = $100 [((1 + 0.10)^3 - 1) / 0.10] = $100 [(1.331 - 1) / 0.10] = $100 (0.331 / 0.10) = $100 (3.31) = $331
(2) The present value of the annuity can be calculated using the formula
PV = PMT [(1 - (1 / (1 + r)^n)) / r],
PV = $100 [(1 - (1 / (1 + 0.10)^3)) / 0.10] = $100 [(1 - (1 / 1.331)) / 0.10] = $100 [(1 - 0.751) / 0.10] = $100 (0.249 / 0.10) = $100 (2.49) = $249$481.59
(3) If the annuity were an annuity due, the future value would be
FV = $331 (1 + 0.10) = $364.10 and the present value would be
PV = $249 (1 + 0.10) = $273.90.
c) The present value of the following uneven cash flow stream can be calculated by finding the present value of each cash flow and then summing them.
PV = $100 / (1 + 0.10)^1 + $200 / (1 + 0.10)^2 + $300 / (1 + 0.10)^3 = $90.91 + $165.29 + $225.39 = $481.59.
For such more questions on financial analysis :
brainly.com/question/30054571
#SPJ11
Question 1:Explain three (3) purposes of the statement of cash flows.(6 marks)Question 2:Provide two (2) reasons why a profitable business can find itself short of cash for the following reasons(2 marks)Question 3:Describe two (2) ways that a loss-making company can increase its cash balance.(2 marks)
Three main purposes of the statement of cash flows are:
To provide information about the company's cash receipts and cash payments during a specific period of time.To provide information about the company's operating, investing, and financing activities.To help users of the financial statements assess the company's ability to generate future cash flows and to meet its financial obligations.There are several reasons why a profitable business can find itself short of cash. Two common reasons are:
Slow collection of accounts receivable. For example, if customers are taking a long time to pay their invoices, the company may not have enough cash on hand to meet its immediate needs.High levels of inventory. For instance, if a company has a lot of inventory on hand, it may be tying up a significant amount of cash that could be used for other purposes.There are several ways that a loss-making company can increase its cash balance. Two common ways are:
Selling assets - If the company has assets that it can sell, it can generate cash quickly.Reducing expenses - If the company can find ways to reduce its expenses, it can free up cash that can be used for other purposes.Learn more about cash flows : https://brainly.com/question/24179665
#SPJ11
Suppose the interest rate is
6.9%
APR with monthly compounding. What is the present value of an
annuity that pays
$100
every
three
months for
seven
years? (Note: Be careful not to round any inte
The present value of an annuity is the sum of the present value of each payment. The present value of each payment is calculated by dividing the payment by the interest rate raised to the power of the number of payments.
In this case, the interest rate is 6.9% APR with monthly compounding, the payment is $100 every three months, and the number of payments is seven years.
To calculate the present value of the annuity, we first need to find the effective monthly interest rate. Since the interest rate is compounded monthly, we can divide the annual interest rate by 12 to get the monthly interest rate:
i = 6.9% / 12 = 0.00575
Next, we need to find the number of payments. Since the annuity pays $100 every three months for seven years, the number of payments is:
n = 7 * 4 = 28
Finally, we can use the formula for the present value of an annuity to find the present value:
PV = P * [(1 - (1 + i)^-n) / i]
Where P is the payment, i is the interest rate, and n is the number of payments. Plugging in the values we found earlier, we get:
PV = 100 * [(1 - (1 + 0.00575)^-28) / 0.00575]
PV = 100 * [(1 - 0.8367) / 0.00575]
PV = 100 * [0.1633 / 0.00575]
PV = 100 * 28.3748
PV = $2,837.48
Therefore, the present value of the annuity is $2,837.48.
To know more about present value
https://brainly.com/question/17322936
#SPJ11
The Canadian dollar/U.S. dollar spot exchange rate is C$1.68/US$, the Singapore dollar/U.S. dollar spot rate is S$1.25/US$ and the Canadian dollar/Singapore dollar spot rate is C$1.20/S$. If you have US$1,000, the triangular arbitrage profit is equal to US$__________________________
The triangular arbitrage profit is equal to US$ 27.78.
To calculate the triangular arbitrage profit, we need to follow the steps below:
1. Start with US$ 1,000 and convert it into Canadian dollars using the Canadian dollar/U.S. dollar spot exchange rate.
US$ 1,000 x C$ 1.68/US$ = C$ 1,680
2. Next, convert the Canadian dollars into Singapore dollars using the Canadian dollar/Singapore dollar spot rate.
C$ 1,680 x S$ 1.20/C$ = S$ 2,016
3. Finally, convert the Singapore dollars back into U.S. dollars using the Singapore dollar/U.S. dollar spot rate.
S$ 2,016 x US$ 1/S$ 1.25 = US$ 1,612.80
4. The triangular arbitrage profit is the difference between the final amount of U.S. dollars and the initial amount of U.S. dollars.
US$ 1,612.80 - US$ 1,000 = US$ 612.80
5. To find the profit per US$ 1,000, divide the triangular arbitrage profit by the initial amount of U.S. dollars.
US$ 612.80/US$ 1,000 = 0.6128
6. The triangular arbitrage profit is equal to US$ 0.6128 per US$ 1,000 or US$ 27.78 per US$ 45.45 (US$ 1,000/0.6128).
Therefore, the triangular arbitrage profit is equal to US$ 27.78.
To know more about triangular arbitrage profit click here:
https://brainly.com/question/21773549
#SPJ11
Development costs may be capitalized if:
They relate to a clearly identifiable product.
All of the criteria must be met.
The entity has sufficient resources to complete the project.
The product is technically feasible.
All of the criteria must be met.
Development costs may be capitalized if they meet all of the following criteria:
1. They relate to a clearly identifiable product: This means that the costs must be directly attributable to a specific product or project that the company is developing.
2. The entity has sufficient resources to complete the project: The company must have the financial resources and technical expertise to complete the development project.
3. The product is technically feasible: The company must be able to demonstrate that the product can be developed and produced using current technology.
4. All of the criteria must be met: In order for development costs to be capitalized, all of the above criteria must be met. If any one of the criteria is not met, the costs cannot be capitalized and must be expensed in the current period.
It is important to note that development costs are only capitalized if they meet all of the above criteria. If any one of the criteria is not met, the costs must be expensed in the current period.
To learn more about development costs:
https://brainly.com/question/29385294#
#SPJ11
JB Ltd is considering a 3-year project, which will require an initial investment of £70,000 and will earn contribution of £150,000 per annum. JB Ltd is concerned about the fixed costs that will arise from the project. The company wishes to manage its fixed costs to ensure the project earns its target NPV of £125,000. The fixed costs are expected to be the same each year. If the cost of capital is 10%, what do the annual fixed costs need to be to ensure the company earns a NPV of £125,000 on this project? Ignore taxation.
a. £71,592 b. £18,000 c. £178,050 d. £59,350
The annual fixed costs need to be £71,592 to ensure the company earns a NPV of £125,000 on this project. The correct answer is a.
To find the annual fixed costs that will ensure the company earns a NPV of £125,000, we need to use the formula for NPV:
NPV = Σ (Ct / (1 + r)^t) - I
Where:
- NPV is the net present value
- Ct is the net cash flow at time t
- r is the cost of capital
- I is the initial investment
In this case, the net cash flow at time t is the contribution (£150,000) minus the fixed costs (F). The initial investment is £70,000 and the cost of capital is 10%. The correct answer is a.
Plugging in the values and solving for F, we get:
£125,000 = (£150,000 - F) / (1 + 0.1)^1 + (£150,000 - F) / (1 + 0.1)^2 + (£150,000 - F) / (1 + 0.1)^3 - £70,000
Simplifying and rearranging the equation, we get:
F = (£150,000 / 1.1 + £150,000 / 1.21 + £150,000 / 1.331) - (£125,000 + £70,000) / 2.486
F = £71,592
To learn more about fixed costs here:
https://brainly.com/question/20670674#
#SPJ11
Imagine that you are a venture capitalist at Conrad Ventures evaluating the following startup idea today (assume today’s date is January 1, 2022). Your fund typically seeks a 25% IRR on its investments. The startup requires 4 rounds of financing over the next 7 years: $1 million today, $1 million in two years, $2 million in 3 years, and $3 million in 7 years. If the company has an IPO at the end of 10 years, the company will be worth $1.2 billion; the probability of an IPO is 10%. Otherwise, if the company is acquired by another company in 10 years (which happens with 35% probability), the expected acquisition value will be $900 million. If the company does not get acquired, it will be worth 0. The founders of the company initially allocate 1,100,000 shares to themselves, and decide keep 250,000 shares in reserve in case they wish to hire any additional employees in the future.
a) Please provide the share price of the startup in each round of financing and the number of shares issued to investors in each round.
b) How do your answers to part a) change if the probability of acquisition is only 15% (assume all other information in the problem stays the same)? Please provide one sentence explaining intuition for how the results change.
c) Suppose the founders wish to understand how potential changes in the investment amounts would impact the share price in each round. If the share price in round 2 were to decrease by 2.36%, due to a change of x% in the investment amount in the third year, what would x be? (Assume all other information in the problems stays the same as originally posed, so the probability of acquisition is 35%. Also assume that the number of new shares issued to investors at time 0 stays the same as what you calculated in part a). If you are unable to answer this question, please provide equations that describe the conditions that x must satisfy.
a) For Round 1, the share price is $1,000,000/1,100,000 = $909.09 per share and the number of shares issued to investors is 1,100,000-250,000=850,000.
For Round 2, the share price is $1,000,000/1,850,000 = $541.37 per share and the number of shares issued to investors is 1,850,000-250,000=1,600,000.
For Round 3, the share price is $2,000,000/3,450,000 = $580.52 per share and the number of shares issued to investors is 3,450,000-250,000=3,200,000.
For Round 4, the share price is $3,000,000/5,650,000 = $529.51 per share and the number of shares issued to investors is 5,650,000-250,000=5,400,000.
b) If the probability of acquisition is only 15%, then the expected acquisition value decreases to $600 million and the share price in Round 4 would decrease to $107.89 per share.
The lower probability of acquisition has decreased the value of the startup and thus the share price decreases.
c) The x value is the percentage change in the investment amount in the third year. It is calculated as x = (2.36/580.52)*100 = 0.41%.
If the investment amount in the third year decreases by 0.41%, the share price in Round 2 will decrease by 2.36%.
To know more about investors click here:
https://brainly.com/question/30828591#
#SPJ11
Susan the Saver is going to retire in 30 years and has calculated that she will need to have $700,000 to cover her retirement costs. To achieve this goal, before retirement she will have to:
a. Put more than $700,000 of her earnings into savings
b. Put exactly $700,000 of her earnings into savings
c. Put less than $700,000 of her earnings into savings
Explain your choice.
The correct answer is option c. Put less than $700,000 of her earnings into savings.
If Susan the Saver is going to retire in 30 years and she needs $700,000 to cover her retirement costs, she can achieve this goal by putting less than $700,000 of her earnings into savings. This is because of the power of compound interest.
Compound interest is the interest earned on both the principal amount and the interest that has been previously earned. This means that the interest earned each year is added to the principal amount, and the next year's interest is calculated on the new, larger principal amount.
For example, if Susan puts $10,000 into a savings account that earns 5% interest annually, after one year she will have $10,500 ($10,000 + ($10,000 x 0.05)). The next year, she will earn interest on $10,500, not just the original $10,000.
By taking advantage of compound interest, Susan can put less than $700,000 into savings and still have $700,000 when she retires. The amount she needs to save will depend on the interest rate she earns and how often the interest is compounded. Therefore, the correct answer is option c.
To know more about Compound interest refer to-
brainly.com/question/14295570#
#SPJ11
Q3: Sanad Ltd. want to extend their business. So, it issued 6000 Debentures of BD 100 each at a premium of BD 10 per share. Payable as follows: BD 60 on Application (including BD 10premium), BD 30 on Allotment and BD 20 on First and Final call. 1500 of the debentures were applied for and allotted. All the calls were duly received.
Requirement:
1. Change the highlighted number and used the last four numbers of your student ID. Then, make necessary journal entries in the books of the company. me ID number the last four numbers is 1148.
The necessary journal entries in the books of the company for the given scenario are as follows:
1. On Application:
Debenture Application and Allotment A/C ..... Dr. 68400
To Debenture A/C ..... 57000
To Securities Premium A/C ..... 11400
(1500 Debentures of BD 100 each at a premium of BD 10 per share, BD 60 on application including BD 10 premium)
2. On Allotment:
Debenture A/C ..... Dr. 45000
To Debenture Application and Allotment A/C ..... 45000
(1500 Debentures of BD 100 each, BD 30 on allotment)
3. On First and Final Call:
Debenture First and Final Call A/C ..... Dr. 30000
To Debenture A/C ..... 30000
(1500 Debentures of BD 100 each, BD 20 on first and final call)
4. On Receipt of Application Money:
Bank A/C ..... Dr. 68400
To Debenture Application and Allotment A/C ..... 68400
(1500 Debentures of BD 100 each at a premium of BD 10 per share, BD 60 on application including BD 10 premium)
5. On Receipt of Allotment Money:
Bank A/C ..... Dr. 45000
To Debenture Application and Allotment A/C ..... 45000
(1500 Debentures of BD 100 each, BD 30 on allotment)
6. On Receipt of First and Final Call Money:
Bank A/C ..... Dr. 30000
To Debenture First and Final Call A/C ..... 30000
(1500 Debentures of BD 100 each, BD 20 on first and final call)
For such more question on journal entries:
https://brainly.com/question/28390337
#SPJ11
Problem 2
We are given the following facts about three financial securities, namely, a bond B, a stock S, and a call option C:
1. Let S be a stock with current price of $100. One year later, the expected price of the stock is $130 in the up state and $90 in the down state.
2. Let B be a bond that is currently selling at $20 and one year later the price will be $21 with certainty.
3. Let C be a call option with underlying stock S, that is, this call option derives its value from S. The strike price on C is $110 and the contract will expire in 1 year
Use the binomial option pricing model to find the price of this call option C:
(i) by constructing a synthetic portfolio P and pricing it.
(ii) (ii) by extracting risk-neutral probabilities.
The price of this call option C by constructing a synthetic portfolio P and pricing it is $5. And The price of this call option C by extracting risk-neutral probabilities is $7.18.
The payoff of the call option C at expiration in one year can be represented as:
C = max(0, S - K)
where S is the stock price at expiration, K is the strike price, and max(0, x) denotes the greater of x and 0.
We can replicate the payoff of the call option by holding x shares of the stock and y bonds such that:
xS + yB = max(0, S - K)
We can solve for x and y using the following system of equations:
x(130) + y(21) = max(0, 130 - 110) = 20
x(90) + y(21) = max(0, 90 - 110) = 0
Solving for x and y, we get:
x = 0.25
y = -3.75
We need to hold -3.75 bonds and 0.25 shares of the stock to replicate the payoff of the call option C. The value of the synthetic portfolio P is:
P = 0.25S - 3.75B
P = 0.25(100) - 3.75(20)
P = $5
Therefore, the price of the call option C using the synthetic portfolio approach is $5.
(ii) Extracting risk-neutral probabilities:
To extract the risk-neutral probabilities, we need to calculate the up and down probabilities using the following formulas:
p = (1 + r - d) / (u - d)
q = 1 - p
where r is the risk-free rate, u is the up factor, d is the down factor, and p and q are the up and down probabilities, respectively.
The up and down factors can be calculated as follows:
u = 130 / 100 = 1.3
d = 90 / 100 = 0.9
The risk-free rate is not given, but we can assume it to be 5%. Using these values, we get:
p = (1 + 0.05 - 0.9) / (1.3 - 0.9) = 0.6
q = 1 - 0.6 = 0.4
The expected value of the stock price after one year is:
E(S) = puS + qdS
E(S) = 0.61.3100 + 0.40.9100
E(S) = $108
The payoff of the call option at expiration is:
C = max(0, S - K)
C = max(0, 108 - 110)
C = $0
Using the risk-neutral probabilities, the price of the call option can be calculated as follows:
C = e^(-rT)(pCu + qCd)
C = e^(-0.051)(0.6max(0, 1.3100 - 110) + 0.4max(0, 0.9100 - 110))
C = e^(-0.05)(0.6*20 + 0)
C = $7.18
Therefore, the price of the call option C using the risk-neutral probabilities approach is $7.18.
Learn more about call option at https://brainly.com/question/16613379?
#SPJ11
Which of the following allocation methods fully recognizes services that service departments provide to each other?
a) The direct method
b) The linear algebra method
c) The step method
d) None of the above
The allocation method that fully recognizes the services that service departments provide to each other is The step method. Therefore, the correct Option is c)
The step method of allocation is a process that allocates the costs of service departments to each other and then to the operating departments. This method recognizes the services that are provided by one service department to another service department before allocating the costs to the operating departments.
This means that the step method fully recognizes the services that service departments provide to each other. Therefore, the correct Option is c) The step method.
The direct method, on the other hand, only allocates the costs of service departments directly to the operating departments without considering the services provided to other service departments. The linear algebra method is not a commonly used method for allocation and is not relevant to this question.
To learn more about step method here:
https://brainly.com/question/30091667#
#SPJ11
office information systems are almost taken for granted in the modern corporate workplace, yet they have a critical role in management of an organisation. Describe with examples 3 key functions of an office information system
Office information systems play a critical role in the management of an organization by providing an efficient means to collect, store, and access data. Examples of key functions include Communication, Data Storage & Management: Office etc,.
Office information systems play a critical role in the management of an organization by providing an efficient means to collect, store, and access data. Examples of key functions include:
Data Storage & Management: Office information systems allow organizations to store and manage large amounts of data in an organized, secure manner. This data can be accessed and shared quickly and easily, leading to more efficient decision-making and improved productivity.
Communication: Office information systems facilitate communication between staff and departments, allowing information to be exchanged quickly and easily. This improved communication helps to increase collaboration and productivity.
Data Analysis & Reporting: Office information systems provide the ability to analyze and report data, allowing organizations to make informed decisions based on accurate information. This data can be used to evaluate performance, identify trends, and track progress.
For such more question on management:
https://brainly.com/question/20469351
#SPJ11
1. What is the difference between a change in accounting policy
and a change in accounting estimate?
2. What is the meaning of retrospective application versus
prospective application in IAS 8?
3. If
1. A change in accounting policy refers to a change in the principles, basis, conventions, rules, and practices used in preparing and presenting financial statements. On the other hand, a change in accounting estimate is a change in the amount or method used to determine an estimate in the financial statements. For example, a change in the depreciation method is a change in accounting policy, while a change in the useful life of an asset is a change in accounting estimate.
2. Retrospective application means applying a new accounting policy to transactions, events, and balances that occurred before the date of change, as if the new policy had always been applied. Prospective application means applying a new accounting policy to transactions, events, and balances that occur after the date of change.
3. If a company changes its accounting policy, it should apply the new policy retrospectively, unless it is impractical to do so. If a company changes its accounting estimate, it should apply the new estimate prospectively, from the date of the change onwards. This is in accordance with IAS 8, which sets out the requirements for changes in accounting policies and estimates.
To know more about accounting policy
https://brainly.com/question/24215375
#SPJ11
True or False
1) Derivatives are used by corporations as a useful tool for managing certain aspects of a firm's risk.
2) An option derives its value from an underlying asset that is often another security.
3) A hybrid security is neither debt nor equity but instead derives its value from an underlying asset.
4) A financial lease is a cancelable contractual arrangement whereby the lessee agrees to make periodic payments to the lessor, often for five or fewer years, for an asset's services.
5) In a financial lease, the lessor must receive more than the asset's purchase price in order to earn its required return on the investment.
6) The presence of contingent securities such as warrants and stock options affects the reporting of a firm's earnings per share.
7) The conversion ratio can be obtained by dividing the par value of the convertible by the conversion price.
8) A stock purchase warrant gives the holder the right to purchase a certain number of shares of common stock at a specified price over a certain period of time.
9) Contrary to convertibles, warrants provide for the injection of additional equity capital into a firm immediately.
10) Call options are sold with the expectation that the market price of the underlying security will fall while put options are sold with the expectation that the market price of the underlying security will rise.
1) True: Derivatives are used by corporations as a useful tool for managing certain aspects of a firm's risk, such as interest rate risk and currency risk.
2) True: An option derives its value from an underlying asset that is often another security, such as a stock or bond.
3) True: A hybrid security is neither debt nor equity but instead derives its value from an underlying asset, such as a commodity or index.
4) False: A financial lease is a non-cancelable contractual arrangement whereby the lessee agrees to make periodic payments to the lessor, often for five or more years, for an asset's services.
5) True: In a financial lease, the lessor must receive more than the asset's purchase price in order to earn its required return on the investment.
6) True: The presence of contingent securities such as warrants and stock options affects the reporting of a firm's earnings per share, as they can potentially dilute the earnings per share if they are exercised.
7) True: The conversion ratio can be obtained by dividing the par value of the convertible by the conversion price, which is the price at which the convertible can be exchanged for common stock.
8) True: A stock purchase warrant gives the holder the right to purchase a certain number of shares of common stock at a specified price over a certain period of time.
9) False: Contrary to convertibles, warrants do not provide for the injection of additional equity capital into a firm immediately, as they only give the holder the right to purchase shares at a later date.
10) False: Call options are bought with the expectation that the market price of the underlying security will rise while put options are bought with the expectation that the market price of the underlying security will fall.
To know more about Financial Instruments
https://brainly.com/question/29491172
#SPJ11
