ANSWER:
you need wallet and money
Explanation:
a) You have been examining arbitrage opportunities with options. You have just found
the following information regarding European options written on Commonwealth
Bank of Australia shares. Using this information, discuss whether put-call parity
holds in this instance? If it doesn't, indicate what strategy you would implement on
taking advantage of any arbitrage opportunity and the profit you would earn from
your strategy (Note: You are required to provide a table outlining the initial and
terminal values of your strategy). (9 marks)
●
A Commonwealth Bank of Australia shares is currently selling for $98.16 on the
ASX.
A 20-month European call option contract on Commonwealth Bank of
Australia shares with a strike price of $90 is priced at $6.50.
A 20-month European put option contract on Commonwealth Bank of
Australia shares with a strike price of $90 is priced at $0.25.
The risk-free rate of interest is 5.55% p.a.
Where the above is given, Put-call parity does not hold.
Strategy - Buy put option, sell short call option, buy stock. Profit depends on stock price.
How is this so?To determine if put-call parity holds in this instance, we can compare the prices of the call and put options with the stock price and risk-free rate.
According to put-call parity, the relationship between the prices of a call option (C), put option (P), stock price (S), and present value of the strike price (X) can be expressed as:
C - P = S - X / (1 + r) [tex]^{t}[/tex]
Let's calculate the values -
Stock price (S) = $98.16Strike price (X) = $90Call option price (C) = $6.50Put option price (P) = $0.25Risk-free rate (r) = 5.55% per annumTime to expiration (t) = 20 monthsUsing the formula, we can substitute the values and check if the equation holds -
$6.50 - $0.25 = $98.16 - $90 / (1 + 0.0555)⁽²⁰⁺¹²⁾
$6.25 = $8.16 / (1.04625)⁽²⁰⁺¹²⁾
$6.25 = $8.16 / 1.0956
$6.25 = $7.46
Since $6.25 does not equal $7.46, put-call parity does not hold in this instance.
To take advantage of the arbitrage opportunity, we can execute the following strategy -
1. Buy the underpriced put option for $0.25.
2. Sell short the overpriced call option for $6.50.
3. Simultaneously buy the underlying stock for $98.16.
Table outlining the initial and terminal values of the strategy is attached accordingly.
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Question 2
(10 Marks)
A company uses 15,000 units of stock item 6786 each year. The item has a purchase cost of R4 per
unit. The cost of placing an order for re-supply is R220. The annual holding cost of one unit of the item
is 10% of its purchase cost.
Data relating to stores item 6787 are as follows.
Daily use:
Lead time for re-supply:
Reorder quantity:
Required:
i.
ii.
300 Units
5-20 Days
10,000 Units
EOR
What is the economic order quantity for item 6786, to the nearest unit?
What would be the effect of an increase in the annual holding cost per unit on (1) the EOQ and (2)
total annual ordering costs?
What should be the reorder level for this stock item (6787), to avoid the possibility of inventory-outs"
1. The economic order quantity for item 6786 is approximately 2,568 units. If the annual holding cost per unit increases, the EOQ will decrease. The total annual ordering costs will also decrease if the annual holding cost per unit increases.
2. The reorder level for stock item 6787 should be set at 6,000 units to avoid the possibility of inventory-outs.
How did we arrive at these assertions?To calculate the economic order quantity (EOQ) for item 6786, we can use the following formula:
EOQ = √((2 × Annual Demand × Cost per Order) / Holding Cost per Unit)
Given the following data:
Annual Demand = 15,000 units
Cost per Order = R220
Holding Cost per Unit = 10% of R4 = R0.4
Substituting these values into the formula:
EOQ = √((2 × 15,000 × 220) / 0.4)
EOQ = √(6,600,000)
EOQ ≈ 2,568 units (to the nearest unit)
Therefore, the economic order quantity for item 6786 is approximately 2,568 units.
Effect of an increase in the annual holding cost per unit:
1) The EOQ: If the annual holding cost per unit increases, the EOQ will decrease. This is because a higher holding cost per unit means it becomes more expensive to hold inventory, and therefore, it is more cost-effective to order smaller quantities more frequently.
2) Total annual ordering costs: The total annual ordering costs will also decrease if the annual holding cost per unit increases. This is because the decrease in the EOQ will result in more frequent orders, leading to more ordering costs but less holding costs. The decrease in holding costs will outweigh the increase in ordering costs, resulting in a lower total.
Reorder level for stock item 6787 to avoid inventory-outs:
To calculate the reorder level, we need to consider the daily use and lead time for re-supply. The reorder level should be set to ensure that there is enough stock to cover the daily demand during the lead time.
Reorder Level = Daily Use × Lead Time for Re-supply
Given the following data:
Daily Use = 300 units
Lead Time for Re-supply = 5-20 days (let's take the maximum value, which is 20 days)
Reorder Level = 300 × 20
Reorder Level = 6,000 units
Therefore, the reorder level for stock item 6787 should be set at 6,000 units to avoid the possibility of inventory-outs.
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Price a 2-yr 4% semiannual coupon bond with a par value of $1000 and the yield to maturity (discount rate) is 4.51% per annum.
Round the answer to the nearest 2 decimal points. If your answer is $12.345, enter "12.35" in the answer box.
The price of the 2-year 4% semiannual coupon bond with a par value of $1000 and a yield to maturity of 4.51% per annum is approximately $932.08 (rounded to the nearest 2 decimal points).
To price a 2-year 4% semiannual coupon bond with a par value of $1000 and a yield to maturity of 4.51% per annum, we can use the formula for the present value of a bond. The bond pays semiannual coupons, so we need to calculate the present value of each coupon payment and the present value of the par value at maturity.
Using the given values:
Coupon payment = $20
Yield to maturity = 4.51% per annum
Number of coupon payments per year = 2
Par value = $1000
Number of periods until the coupon payment = 1 (for each semiannual coupon payment)
PV of coupon payment = $20 / (1 + (4.51% / 2))^1 + $20 / (1 + (4.51% / 2))^2
PV of coupon payment = $19.14 + $18.36
PV of coupon payment = $37.50
PV of par value = $1000 / (1 + (4.51% / 2))^4
PV of par value = $894.58
Bond price = PV of coupon payments + PV of par value
Bond price = $37.50 + $894.58
Bond price = $932.08
Therefore, the price of the 2-year 4% semiannual coupon bond with a par value of $1000 and a yield to maturity of 4.51% per annum is approximately $932.08 (rounded to the nearest 2 decimal points).
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In the insert table box, you select the (blank) checkbox to crest the first row as the header of the table
Selecting the "Header row" checkbox in the "Insert Table" box allows you to create a visually distinct first row that serves as the header of the table, providing column labels and enhancing readability.
In the "Insert Table" box, you select the checkbox labeled "Header row" to create the first row as the header of the table. This checkbox allows you to specify that the first row should be treated differently from the rest of the table rows.
When the "Header row" checkbox is selected, the text formatting applied to the first row is typically different from the formatting of the other rows, usually appearing bold or with a different background color.
The header row serves as a reference for the table's content, providing column labels or titles that describe the data in each column. It helps users quickly understand the information presented in the table and aids in navigating or sorting the data. By distinguishing the header row from the rest of the table, it becomes easier to differentiate between the table's structure and its content, enhancing readability and organization.
By utilizing the "Header row" checkbox, you can effortlessly create visually appealing and user-friendly tables with clear headings that improve the overall understanding and accessibility of your data.
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1.3 Read the scenario below and answer the questions that follow: BATAU MANUFACTURERS (BM) Batau Manufacturers is a large business that specialises in the manufacturing of cleaning products. The management at BM always set direction and establishes priorities for their business. They also buy raw materials in bulk at lower prices. 1.3.1 Identify TWO business functions applied by BM from the scenario
Two business functions applied by BM from the scenario are strategic management and procurement.
What is the explanation for the above ?Strategic management is evident in their practice of setting direction and establishing priorities for their business,which helps guide their decision-making and overall business strategy.
Procurement is also observed as they buy raw materials in bulk at lower prices,highlighting their efficient sourcing and supply chain management practices.
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Interventions strategies to prevent restrictions or barrier in small businesses townships
To prevent restrictions or barriers in small businesses in townships, several intervention strategies can be implemented:
1. Business Development Support: Offer training programs, workshops, and mentorship opportunities to help small business owners develop essential skills such as financial management, marketing, and business planning.
2. Access to Capital: Establish microfinance programs or low-interest loan schemes to provide small businesses with the necessary funds to start or expand their operations. Additionally, create partnerships with financial institutions to streamline the loan application process.
3. Infrastructure Improvement: Invest in upgrading township infrastructure, including roads, electricity, and internet connectivity. This will enhance the business environment, attract investors, and facilitate smoother operations for small businesses.
4. Regulatory Simplification: Simplify and streamline licensing and permit procedures, reducing bureaucracy and paperwork burdens. This will make it easier for entrepreneurs to start and operate businesses, fostering a favorable environment for small enterprises.
5. Market Linkages: Facilitate connections between small businesses and larger supply chains, enabling them to access wider markets and secure stable customer bases. This can be achieved through networking events, trade fairs, and partnerships with established businesses.
6. Local Procurement Policies: Encourage local governments and institutions to adopt procurement policies that prioritize purchasing goods and services from small businesses in the townships, thereby boosting their economic growth and sustainability.
7. Collaborative Initiatives: Foster collaboration among small businesses by establishing business associations, cooperatives, or incubation centers. These platforms can provide shared resources, collective marketing efforts, and a supportive community.
By implementing these intervention strategies, the barriers and restrictions faced by small businesses in townships can be minimized, promoting their growth, sustainability, and contribution to the local economy.
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the oriole mills company has just disclosed the following financial information in its annual report sales of 1.47 million, cost of goods sold of $817,100, depreciation expenses of $179,600, and interest expenses of $ 94,000. Assume that the firm has an average tax rate of 29 percent. Compute the cash flows to investors from operating activity.
The cash flows to investors from operating activities for Oriole Mills Company is $543,973.
To compute the cash flows to investors from operating activities, we need to start with the net income and make adjustments for non-cash expenses and changes in working capital. The formula to calculate cash flows from operating activities is as follows:
Cash Flows from Operating Activities = Net Income + Depreciation Expenses + Non-Cash Interest Expenses - Increase in Current Assets + Increase in Current Liabilities + Decrease in Current Assets - Decrease in Current Liabilities
Given the financial information provided, we can calculate the cash flows to investors from operating activities as follows:
Net Income:
Net Income = Sales - Cost of Goods Sold - Depreciation Expenses - Interest Expenses - Taxes
Net Income = $1,470,000 - $817,100 - $179,600 - $94,000 - ($1,470,000 - $817,100 - $179,600 - $94,000) * 0.29
Net Income = $1,470,000 - $817,100 - $179,600 - $94,000 - ($379,300 * 0.29)
Net Income = $1,470,000 - $817,100 - $179,600 - $94,000 - $109,927
Net Income = $269,373
Depreciation Expenses = $179,600
Non-Cash Interest Expenses = $94,000
Changes in Working Capital:
Increase in Current Assets = 0 (no information provided)
Increase in Current Liabilities = 0 (no information provided)
Decrease in Current Assets = 0 (no information provided)
Decrease in Current Liabilities = 0 (no information provided)
Finally, we can calculate the cash flows to investors from operating activities:
Cash Flows from Operating Activities = $269,373 + $179,600 + $94,000 + 0 + 0 + 0 + 0
Cash Flows from Operating Activities = $543,973
Therefore, the cash flows to investors from operating activities for the Oriole Mills Company is $543,973.
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