The weight in the stock fund is 136%, the expected return of the optimal risky portfolio is 30.4%, and the standard deviation of the optimal risky portfolio is 53.41%.
To calculate the weight in the stock fund, expected return, and standard deviation of the optimal risky portfolio, we can use the concept of portfolio optimization.
1. Weight in Stock Fund (W):
To find the weight in the stock fund, we need to calculate the risk tolerance of the investor. The risk tolerance can be calculated by subtracting the risk-free rate (T-bill rate, which is 3%) from the expected return of the stock fund (18%). Then, divide this result by the product of the expected return of the stock fund minus the expected return of the bond fund (18% - 7%). So, the weight in the stock fund (W) is (18% - 3%) / (18% - 7%) = 15% / 11% = 1.36 or 136%.
2. Expected Return (ER):
The expected return of the optimal risky portfolio can be calculated using the weight in the stock fund. Multiply the weight in the stock fund (W) by the expected return of the stock fund (18%) and add it to the product of the weight in the bond fund (1 - W) and the expected return of the bond fund (7%). So, the expected return (ER) is 1.36 * 18% + (1 - 1.36) * 7% = 24.48% + 5.92% = 30.4%.
3. Standard Deviation (SD):
The standard deviation of the optimal risky portfolio can be calculated using the weights and standard deviations of the stock and bond funds. Multiply the weight in the stock fund (W) squared by the standard deviation of the stock fund (35%) squared and add it to the product of the weight in the bond fund (1 - W) squared and the standard deviation of the bond fund (19%) squared. Also, multiply twice the weight in the stock fund (W) by the weight in the bond fund (1 - W) and the correlation coefficient (0.05) and the standard deviation of the stock fund (35%) and the standard deviation of the bond fund (19%). Finally, take the square root of the result. So, the standard deviation (SD) is sqrt((1.36^2 * 35%^2) + ((1 - 1.36)^2 * 19%^2) + (2 * 1.36 * (1 - 1.36) * 0.05 * 35% * 19%)) = sqrt(0.2201 + 0.0424 + 0.0224) = sqrt(0.2849) = 0.5341 or 53.41%.
In summary, the weight in the stock fund is 136%, the expected return of the optimal risky portfolio is 30.4%, and the standard deviation of the optimal risky portfolio is 53.41%.
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You are the Chief Financial Officer(CFO) of a major U.S.publicly traded company in the movie industry.At present,the market price of your stock has dropped by 40% due to the panic of the Corona Virus even though the company is doing very well financially. Stockholders are beginning to panic.What can you do as the CFO to mitigate the panic your stockholders are feeling.Write a 2 page essay explaining your plan.
As the CFO of a major U.S. publicly traded company in the movie industry, there are several steps you can take to mitigate the panic your stockholders are feeling due to the 40% drop in stock price caused by the COVID-19 pandemic. Here is a 2-page essay explaining a plan:
1. Communicate transparently: Hold a conference call or investor meeting to provide accurate and timely information about the company's financial health, growth prospects, and steps being taken to navigate the crisis. Explain how the company's fundamentals remain strong, highlighting revenue streams that are not significantly impacted by the pandemic.
2. Show confidence: Express confidence in the company's ability to weather the storm and reassure stockholders that management is committed to protecting their interests. Highlight the company's past resilience during challenging times.
3. Provide guidance: Offer updated guidance on the company's financial performance and growth prospects, taking into account the potential impact of the pandemic. This will help investors better understand the future prospects of their investments.
4. Strengthen cash position: Take proactive steps to conserve cash and enhance liquidity. Evaluate options such as reducing operating expenses, deferring non-essential capital expenditures, and exploring available credit facilities to ensure sufficient financial flexibility.
5. Focus on long-term value: Emphasize the company's long-term strategy and investments that position it for growth beyond the pandemic. Highlight upcoming movie releases, expansion plans, or strategic partnerships that demonstrate resilience and potential for future returns.
6. Engage with shareholders: Actively engage with key shareholders to understand their concerns and address them directly. Consider establishing a shareholder hotline or email address to encourage communication and gather feedback.
By implementing these strategies, you can help mitigate the panic your stockholders are feeling and instill confidence in the company's long-term prospects. Remember, transparency, communication, and a focus on value will be key to navigating this challenging situation successfully.
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A bill of exchange for $100,000 was drawn by software provider Mr Johnson to order his client Tencent Company to pay himself. After Tencent Company accepted to pay, Mr Johnson endorsed this bill to pay Ms Lee for her paintings. Ms Fan then forged the signature of Ms Lee and bought a second hand car from Dealer BTD. Questions: What are the legal roles of these underlined parties with regard to this bill of
The legal roles of the underlined parties with regard to this bill of exchange are discussed below:a) Software provider Mr. Johnson: He is the drawer of the bill of exchange and the payee to whom the amount is to be paid by Tencent Company.
He has the right to receive the payment of $100,000 from Tencent Company. After Tencent Company has accepted to pay, he can transfer the right of payment to a third party by endorsing it. b) Tencent Company: The company has accepted to pay the amount of $100,000 to Mr. Johnson. After accepting the bill, the company is liable to pay the amount to the holder of the bill, i.e., Ms. Lee. c) Ms. Lee: Ms. Lee is the holder of the bill of exchange after Mr. Johnson endorsed it to her. She has the right to receive the payment of $100,000 from Tencent Company. However, she forges the signature, which is illegal and makes her liable for the same. d) Ms. Fan: Ms. Fan bought a second-hand car from Dealer BTD by using the bill of exchange endorsed by Ms. Lee. She is not liable as she did not have any knowledge of the forgery made by Ms. Lee. In the given case, the bill of exchange was drawn by software provider Mr. Johnson for $100,000 to order his client Tencent Company to pay himself. After Tencent Company accepted to pay, Mr. Johnson endorsed this bill to pay Ms. Lee for her paintings. Ms. Lee then endorsed the bill to Ms. Fan, who used it to buy a second-hand car from Dealer BTD. Later, it was found that the signature of Ms. Lee was forged by Ms. Fan. Therefore, the legal roles of the parties involved in this bill of exchange transaction are vital to understand.Let's start with the software provider Mr. Johnson, who is the drawer of the bill of exchange and the payee to whom the amount is to be paid by Tencent Company. He has the right to receive the payment of $100,000 from Tencent Company. After Tencent Company has accepted to pay, he can transfer the right of payment to a third party by endorsing it.Tencent Company, on the other hand, accepted the bill of exchange and is liable to pay the amount of $100,000 to Mr. Johnson. After accepting the bill, the company is liable to pay the amount to the holder of the bill, i.e., Ms. Lee. Ms. Lee is the holder of the bill of exchange after Mr. Johnson endorsed it to her. She has the right to receive the payment of $100,000 from Tencent Company. However, she forges the signature, which is illegal and makes her liable for the same.Ms. Fan bought a second-hand car from Dealer BTD by using the bill of exchange endorsed by Ms. Lee. She is not liable as she did not have any knowledge of the forgery made by Ms. Lee. However, Ms. Fan's purchase of a second-hand car using a bill of exchange, which is not a commonly accepted practice, puts her in a position of high risk.
In conclusion, Mr. Johnson has the right to receive payment from Tencent Company, and Ms. Lee has the right to receive payment from Tencent Company after Mr. Johnson endorsed it to her. Ms. Fan's purchase of a car using a bill of exchange is not a commonly accepted practice, but she is not liable for the forgery of Ms. Lee's signature. Ms. Lee is responsible for the forgery and illegal activity.
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Which of the following is a usefulness of the statement of financial position? A. Valuation of items at historical cost. Evaluate capital structure. Omitted items. The use of judgments and estimates. OB. OC. O D
The following is a usefulness of the statement of financial position: Evaluate capital structureThe statement of financial position is the most critical financial statement.
It is commonly referred to as the balance sheet. The statement of financial position is a financial statement that records a company's financial position. As at a specific date, it records assets, liabilities, and equity.What is capital structure?A company's
capital structure is the combination of its debt and equity financing. The combination of capital is utilized to finance the organization's overall operations and growth. It serves as a significant indicator of the company's overall financial health.
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A sustainability report provides stakeholders with important information about a business’ long-term value creation and prospects for the future. Explain the three key elements that need to be included in the sustainability report and how these elements demonstrate the long-term value creation of the business. Select one key stakeholder and discuss what information is of interest
A sustainability report should include three key elements: environmental performance, social impact, and economic sustainability. Stakeholders, such as investors, are particularly interested in financial information, environmental initiatives, and social responsibility programs.
A comprehensive sustainability report should cover three key elements to demonstrate a business's long-term value creation. Firstly, environmental performance highlights the company's commitment to sustainable practices and environmental responsibility. This includes information on energy and resource usage, waste management, carbon emissions, and initiatives to reduce the environmental footprint. By showcasing efforts to minimize negative impacts on the environment, businesses demonstrate their commitment to sustainability and their long-term viability.
Secondly, social impact focuses on the company's engagement with and contribution to society. It encompasses aspects such as employee welfare, diversity and inclusion initiatives, community involvement, and philanthropy. Providing information on social programs, employee well-being, and community partnerships demonstrates the company's commitment to social responsibility and its role in creating positive societal impacts.
Lastly, economic sustainability evaluates the company's financial performance and resilience. It includes financial indicators, such as revenue, profitability, and growth, as well as information on risk management and long-term financial strategies. By demonstrating financial stability and a sustainable business model, companies can instill confidence in stakeholders regarding their long-term value creation.
When considering stakeholders, such as investors, they are particularly interested in financial information, as it directly impacts their investment decisions. They seek data on financial performance, profitability, return on investment, and future growth prospects. Additionally, investors may also be interested in the company's environmental initiatives, as environmental responsibility is increasingly seen as a driver of business success and can positively impact long-term financial performance. Therefore, a sustainability report should provide relevant financial and environmental information to cater to the interests of investors as key stakeholders.
Overall, a well-rounded sustainability report that covers environmental performance, social impact, and economic sustainability provides stakeholders with a comprehensive view of a business's long-term value creation. It demonstrates the company's commitment to sustainability, responsible practices, and its ability to thrive in the future.
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Rocco's manufactures 1,600 units of product per year. The cost of materials for these products are R40 per unit and the cost of placing and receiving one order is R50. Annual carrying cost is 10% of the inventory value. Calculate the Economic Order Quantity for Rocco's.
The Economic Order Quantity (EOQ) for Rocco's is 200 units, calculated using the formula: EOQ = √[(2 × Annual Demand × Ordering Cost) / Carrying Cost per Unit].
The Economic Order Quantity (EOQ) is a formula used to determine the optimal order quantity for a company's inventory. It aims to strike a balance between the cost of ordering and the cost of carrying inventory.
In this case, Rocco's manufactures 1,600 units of product per year. The company incurs a cost of R40 per unit for materials and R50 for placing and receiving each order. The carrying cost is calculated as 10% of the inventory value, which is based on the cost of materials.
The EOQ formula takes into account the annual demand, ordering cost, and carrying cost per unit. By plugging in the values provided, we can calculate the EOQ as approximately 200 units. This means that Rocco's should place orders for 200 units at a time in order to minimize the total cost of ordering and carrying inventory.
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If our basic assumption is that failures will occur, which statement is best?
a. An ounce of prevention is worth a pound of cure
b. A spoonful of sugar makes nedicine go down
c. A stitch in time is worth nin
d. No gain without pain
The best statement that aligns with the basic assumption of failures occurring is option d. "No gain without pain."
Failure is an inherent part of any journey toward success. It is through failures and setbacks that we learn valuable lessons, gain experience, and ultimately grow stronger. By embracing the notion that there can be no progress without encountering difficulties along the way, we are more likely to persevere in the face of adversity and strive toward our goals.
Let's consider an example to illustrate this further. Imagine a student preparing for an important exam. They may encounter obstacles such as difficult concepts, time constraints, and unexpected distractions. If they are aware of the basic assumption that failures will occur, they will approach their studies with the understanding that they may face setbacks along the way.
This mindset will enable them to better handle challenges, seek additional help if needed, and maintain their motivation despite temporary failures. By persisting through the difficulties, they can ultimately achieve success in the form of a good grade on the exam.
In summary, the statement "No gain without pain" best aligns with the basic assumption of failures occurring. It emphasizes the importance of embracing challenges and setbacks as opportunities for growth and progress. Remember, setbacks and failures are not indicators of permanent defeat, but rather stepping stones towards achieving our goals. Therefore, the correct option is D.
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When we characterize Apple as an innovative company, we are identing OA cultural artifacts and rituais Os dominant culture Occounterculture OD subculture 4 Moving to another question will save this response DELL
When we characterize Apple as an innovative company, we are identifying cultural artifacts and rituals. Option A.
What is a cultural artifact?A cultural artifact is an object made by a human being that reflects their cultural background, beliefs, and values. Cultural artifacts may include physical items, such as art, architecture, clothing, or food, as well as practices, rituals, and ceremonies.
What is a cultural ritual?A cultural ritual is a symbolic act or performance that is part of a larger social system. Cultural rituals often involve repetitive actions or behaviors that have symbolic meaning. They can be religious, social, or personal in nature. Examples of cultural rituals include weddings, funerals, holidays, and religious ceremonies.
When we characterize Apple as an innovative company, we are identifying cultural artifacts and rituals because Apple's products, such as the iPhone, iPad, and MacBook, are cultural artifacts that reflect the values and beliefs of the company.
Apple's products are designed to be sleek, user-friendly, and innovative, which reflects the company's commitment to innovation and design excellence. Apple's keynotes and product launches are also cultural rituals that reflect the company's brand identity and values.
Hence, the correct answer is option A. Cultural artifacts and rituals.
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At April 30, partners' capital balances in Blossom Company are G. Donley $64,480, C. Lamar $59,520, and J. Pinkston $22,320. The income sharing ratios are 5:4:1, respectively. On May 1 , the PDLT Company is formed by admitting J. Terrell to the firm as a partner. (a) Your answer is partially correct. Journalize the admission of Terrell under each of the following independent assumptions. (Credit account titles are automatically indented when amount is entered. Do not indent manually, Round answers to 0 decimal places, e.8.5,275.) (1) Terrell purchases 50% of Pinkston's ownership interest by paying Pinkston $19,840 in cash. (2) Terrell purchases 33 1
/3% of Lamar's ownership interest by paying Lamar $18,600 in cash. (3) Terrell invests $76,880 for a 30% ownership interest, and bonuses are given to the old partners. (4) Terrell invests $52,080 for a 30% ownership interest, which includes a bonus to the new partner.
(1) Terrell purchases 50% of Pinkston's ownership interest by paying Pinkston $19,840 in cash. Journal entry for the admission of Terrell under the assumption (1) when he purchases 50% of Pinkston's ownership interest by paying Pinkston $19,840 in cash will be as follows: Date Account Title Debit Credit May 1Cash $19,840 Pinkston, Capital($22,320 * 50%) 11,160Terrell, Capital$31,000 (Calculation: Investment = $22,320/2 + $19,840 = $31,000)To record the admission of Terrell after he purchases 50% of Pinkston's ownership interest by paying Pinkston $19,840 in cash.(2) Terrell purchases 33 1/3% of Lamar's ownership interest by paying Lamar $18,600 in cash. Journal entry for the admission of Terrell under the assumption (2) when he purchases 33 1/3% of Lamar's ownership interest by paying Lamar $18,600 in cash will be as follows: Date Account Title Debit Credit May 1Cash$18,600Lamar, Capital($59,520 * 33 1/3%)19,840Terrell, Capital$38,760 (Calculation: Investment = $59,520 * 33 1/3% + $18,600 = $38,760)To record the admission of Terrell after he purchases 33 1/3% of Lamar's ownership interest by paying Lamar $18,600 in cash.(3) Terrell invests $76,880 for a 30% ownership interest, and bonuses are given to the old partners. Journal entry for the admission of Terrell under the assumption (3) when he invests $76,880 for a 30% ownership interest, and bonuses are given to the old partners will be as follows: Date Account Title Debit Credit May 1Cash$76,880Donley, Capital($64,480 * 5/10)$ 3,000Lamar, Capital($59,520 * 4/10)$ 2,400Pinkston, Capital($22,320 * 1/10)$ 2,232Terrell, Capital$13,828 (Calculation: Investment = $76,880; Bonus to Donley = $64,480 * 5/10 * 10% = $3,000; Bonus to Lamar = $59,520 * 4/10 * 10% = $2,400; Bonus to Pinkston = $22,320 * 1/10 * 10% = $2,232; Total bonus = $7,632; Terrell capital = $76,880 - $7,632 = $69,248; Terrell's share = $69,248 * 30% = $13,828)To record the admission of Terrell after he invests $76,880 for a 30% ownership interest, and bonuses are given to the old partners.(4) Terrell invests $52,080 for a 30% ownership interest, which includes a bonus to the new partner. Journal entry for the admission of Terrell under the assumption (4) when he invests $52,080 for a 30% ownership interest, which includes a bonus to the new partner will be as follows: Date Account Title Debit Credit May 1Cash$52,080Donley, Capital ($64,480 * 5/10) $ 3,520Lamar, Capital ($59,520 * 4/10) $ 2,800Pinkston, Capital ($22,320 * 1/10) $ 2,232Terrell, Capital$45,344.
(Calculation: Investment = $52,080; Bonus to Terrell = $52,080 * 30% * 10% = $1,560; Total cost to Terrell = $52,080 + $1,560 = $53,640; Terrell capital = $53,640 - $1,560 = $52,080) To record the admission of Terrell after he invests $52,080 for a 30% ownership interest, which includes a bonus to the new partner.
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The Graduate Management Admission Test (GMAT) is a standardized exam used by many universities as part of the assessment for admission to graduate study in business. The average GMAT score is 547.† Assume that GMAT scores are bell-shaped with a standard deviation of 100. (a) What percentage of GMAT scores are 647 or higher? % (b) What percentage of GMAT scores are 747 or higher? % (c) What percentage of GMAT scores are between 347 and 547? % (d) What percentage of GMAT scores are between 447 and 747?
(a) Approximately 31.73% of GMAT scores are 647 or higher.
(b) Approximately 15.87% of GMAT scores are 747 or higher.
(c) Approximately 34.13% of GMAT scores are between 347 and 547.
(d) Approximately 68.26% of GMAT scores are between 447 and 747.
To solve these problems, we need to use the concept of z-scores, which measure the number of standard deviations a data point is from the mean. We can then use a standard normal distribution table or a calculator to find the corresponding percentages.
(a) To find the percentage of GMAT scores that are 647 or higher, we need to calculate the z-score for 647. The formula for the z-score is (x - μ) / σ, where x is the value, μ is the mean, and σ is the standard deviation. In this case, x = 647, μ = 547, and σ = 100. Plugging these values into the formula, we get (647 - 547) / 100 = 1. Using a standard normal distribution table or calculator, we find that the area to the right of z = 1 is approximately 0.1587. To get the percentage, we multiply this by 100, resulting in approximately 15.87%. However, since we want the percentage for scores 647 or higher, we need to subtract this from 100, giving us approximately 100 - 15.87 = 84.13%.
(b) Similarly, to find the percentage of GMAT scores that are 747 or higher, we calculate the z-score for 747 using the same formula. With x = 747, μ = 547, and σ = 100, we have (747 - 547) / 100 = 2. Using the standard normal distribution table or calculator, we find that the area to the right of z = 2 is approximately 0.0228. Multiplying this by 100, we get approximately 2.28%. Subtracting this from 100, we find that approximately 100 - 2.28 = 97.72% of GMAT scores are below 747.
(c) To determine the percentage of GMAT scores between 347 and 547, we need to calculate the z-scores for both values. For 347, the z-score is (347 - 547) / 100 = -2, and for 547, the z-score is (547 - 547) / 100 = 0. Using the standard normal distribution table or calculator, we find the area to the right of z = -2 is approximately 0.9772 and the area to the right of z = 0 is 0.5. Subtracting these two values, we obtain approximately 0.9772 - 0.5 = 0.4772. Multiplying this by 100, we get approximately 47.72%.
(d) Finally, to find the percentage of GMAT scores between 447 and 747, we calculate the z-scores for both values. For 447, the z-score is (447 - 547) / 100 = -1, and for 747, the z-score is (747 - 547) / 100 = 2. Using the standard normal distribution table or calculator, we find the area to the right of z = -1 is approximately 0.8413, and the area to the right of z = 2 is approximately 0.0228. Subtracting these two values, we obtain approximately 0.8413 - 0.0228 = 0.8185. Multiplying this by 100, we get approximately 81.85%. However, since we want the percentage between the two scores, we subtract this from 100, resulting in approximately 100 - 81.85 = 18.15%.
In summary, approximately 31.73% of GMAT scores are 647 or higher, 15.87% are 747 or higher, 34.13% are between 347 and 547, and 68.26% are between 447 and 747.
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The balance in the prepaid insurance account, before adjustment at the end of the year, is $18,755. The year end is March 31.
Journalize the March 31 adjusting entry required under each of the following alternatives for determining the amount of the adjustment: (a) the amount of insurance expired during the year is $14,715; (b) the amount of unexpired insurance applicable to future periods is $4,040. Refer to the Chart of Accounts for exact wording of account titles.
CHART OF ACCOUNTS General Ledger
ASSETS
11 Cash 12 Accounts Receivable 13 Supplies 14 Prepaid Insurance 15 Land 16 Equipment 17 Accumulated Depreciation-Equipment
LIABILITIES
21 Accounts Payable 22 Unearned Fees 23 Salaries Payable 24 Taxes Payable
EQUITY
31 Common Stock 32 Retained Earnings 33 Dividends
REVENUE
41 Fees Earned
EXPENSES
51 Advertising Expense 52 Insurance Expense 53 Rent Expense 54 Salary Expense 55 Supplies Expense 56 Utilities Expense 57 Depreciation Expense 59 Miscellaneous Expense
(a) Journalize the March 31 adjusting entry required when the amount of insurance expired during the year is $14,715. Refer to the Chart of Accounts for exact wording of account titles.
PAGE 1
JOURNAL
ACCOUNTING EQUATION
DATE DESCRIPTION DEBIT CREDIT ASSETS LIABILITIES EQUITY
1 __________ Adjusting Entries _____ _________
2 __________ __________________ ______ _______
3 __________ _________________ _______ ________
(b) Journalize the March 31 adjusting entry required when the amount of unexpired insurance applicable to future periods is $4,040. Refer to the Chart of Accounts for exact wording of account titles.
1 __________ Adjusting Entries _____ _________
2 __________ __________________ ______ _______
3 __________ _________________ _______ ________
(a) On March 31, the adjusting entry for the prepaid insurance account is required.(b) On March 31, the adjusting entry for the prepaid insurance account is required.
(a) Journalize the March 31 adjusting entry when the amount of insurance expired during the year is $14,715:
PAGE 1
JOURNAL
ACCOUNTING EQUATION
DATE | DESCRIPTION | DEBIT | CREDIT | ASSETS | LIABILITIES | EQUITY
March 31 | Insurance Expense | $14,715 | | | |
March 31 | Prepaid Insurance | | $14,715 | | |
In this entry, Insurance Expense is debited to recognize the expired insurance for the year, and Prepaid Insurance is credited to reduce the prepaid amount by the expired portion.
(b) Journalize the March 31 adjusting entry when the amount of unexpired insurance applicable to future periods is $4,040:
PAGE 1
JOURNAL
ACCOUNTING EQUATION
DATE | DESCRIPTION | DEBIT | CREDIT | ASSETS | LIABILITIES | EQUITY
March 31 | Prepaid Insurance | | $4,040 | | |
March 31 | Insurance Expense | $4,040 | | | |
In this entry, Prepaid Insurance is credited to reduce the prepaid amount applicable to future periods, and Insurance Expense is debited to recognize the portion of insurance that has been used up during the current period.
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List and explain four ways that businesses are using social media
platforms.
Businesses are utilizing social media platforms in various ways to enhance their marketing and communication strategies. Here are four ways businesses are using social media:
1. Building Brand Awareness: Social media platforms provide a wide reach and allow businesses to create an online presence. By consistently sharing engaging content, businesses can increase brand visibility and awareness. For example, companies often share posts, videos, and images that showcase their products or services, helping potential customers recognize and remember their brand.
2. Customer Engagement and Support: Social media platforms offer businesses an avenue to directly engage with their customers. They can respond to inquiries, provide support, and address concerns in real-time. Additionally, businesses can gain valuable insights and feedback by monitoring conversations and engaging with their audience. This interaction helps build customer loyalty and trust.
3. Targeted Advertising: Social media platforms provide powerful tools for businesses to target specific demographics based on interests, location, age, and more. By leveraging data analytics, businesses can create tailored advertisements and reach their target audience more effectively. This targeted approach increases the chances of converting leads into customers.
4. Influencer Marketing: Many businesses collaborate with influencers on social media platforms to promote their products or services. Influencers have a dedicated following, and their recommendations can significantly impact consumer behavior. By partnering with relevant influencers, businesses can tap into new audiences and increase brand credibility.
These are just a few examples of how businesses are leveraging social media platforms. Each strategy offers unique benefits and helps businesses achieve their marketing and communication goals. It is important for businesses to have a clear understanding of their target audience and objectives before implementing these strategies. By utilizing social media effectively, businesses can strengthen their online presence, engage with customers, and ultimately drive growth.
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c. Sarah has $50,000 in an investment account which pays interest at a rate of 0.8% per month. Suppose that Sarah makes no further deposit or withdrawal, how much will she has in the account in 12 years? Show all your calculations. 4 marks
d. Lucas spends $2,000 every month on buying coffee from the cafes and food shops. Assume the market interest rate for Lucas is 0.6% per month, what is the present value of eliminating this cost by having coffee at home? (You may consider the $2,000 monthly cost of buying coffee as monthly perpetuity). Show all your calculations.
The present value of eliminating Lucas's monthly cost of buying coffee is approximately $333,333.33.
c. To calculate the amount Sarah will have in her investment account in 12 years, we need to use the compound interest formula: A = P(1 + r/n)^(nt), where A is the future value, P is the principal amount, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years.
In this case, Sarah has $50,000 in her account, the interest rate is 0.8% per month, which is equivalent to 9.6% per year (0.8% x 12 months), and interest is compounded monthly (n = 12).
Substituting these values into the formula, we get:
A = 50000(1 + 0.096/12)^(12*12)
A = 50000(1 + 0.008)^(144)
A ≈ 50000(1.008)^144
A ≈ 50000(1.165984)
A ≈ $58,299.20
Therefore, Sarah will have approximately $58,299.20 in her account after 12 years.
d. To calculate the present value of eliminating Lucas's monthly cost of $2,000 on coffee, we can use the present value of a perpetuity formula: PV = PMT / r, where PV is the present value, PMT is the periodic payment, and r is the interest rate.
In this case, Lucas spends $2,000 every month, and the interest rate is 0.6% per month.
Substituting these values into the formula, we get:
PV = 2000 / 0.006
PV ≈ 333,333.33
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Support Department Cost Allocation-Reciprocal Services Method Blue Africa Inc. produces laptops and desktop computers. The company's production activities mainly occur in what the company calls its Laser and Forming departments. The Cafeteria and Security departments support the company's production activities and allocate costs based on the number of employees and square feet, respectively. The total cost of the Security Department is $265,000. The total cost of the Cafeteria Department is $454,000. The number of employees and the square footage in each department are as follows: Security Department Cafeteria Department Laser Department Forming Department Employees Square Feet 10 20 40 50 Using the reciprocal services method of support department cost allocation, determine the total costs from the Security Department that should be allocated to the Cafeteria Department and to each of the production departments. Security Department cost allocation Decurity 540 2,400 3,200 2,400 Forming Cafeteria Laser Department Department Department
Using the reciprocal services method of cost allocation, $109,000 should be allocated from the Security Department to the Cafeteria Department.
The reciprocal services method is used to allocate costs among support departments based on the services they provide to each other. In this case, the Security and Cafeteria departments provide support to the production departments (Laser and Forming).
To determine the allocation of costs, we need to calculate the reciprocal ratios. The reciprocal ratio for the Security Department is calculated by dividing its own costs by the total costs of the other departments.
For the Security Department, the reciprocal ratio is calculated as follows:
Reciprocal ratio = Security Department costs / (Cafeteria Department costs + Laser Department costs + Forming Department costs)
Reciprocal ratio = $265,000 / ($454,000 + $3,200 + $2,400) = $265,000 / $459,600 ≈ 0.577
Now we can allocate costs to the Cafeteria Department using the reciprocal ratio:
Cost allocated to Cafeteria Department = Reciprocal ratio * Cafeteria Department costs
Cost allocated to Cafeteria Department = 0.577 * $454,000 ≈ $262,658
Therefore, the total costs from the Security Department that should be allocated to the Cafeteria Department is approximately $262,658.
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suppose a firm has 26.3 million shares of common stock outstanding at a price of $10.25 per share. The firm also has 228,000 bonds outstanding with a current price of $947. The outstanding bonds have yield to maturity 7.28%. The firms common stock beta is 0.71 and the corporate tax rate is 40%. The expected market return is 13.47% and the T-bill rate is 1.07%. Compute the following:
a) Weight of equity of the firm.
b) Weight of depth of the firm.
c) Cost of equity of the firm
d) after tax cost of debt of the firm
e) WACC for the firm
a) The weight of equity for the firm is approximately 99.57%. b) The weight of debt for the firm is approximately 0.43%. c) The cost of equity for the firm is approximately 10.73%. d) The after-tax cost of debt for the firm is approximately 4.37%. e) The weighted average cost of capital (WACC) for the firm is approximately 10.60%.
a) To calculate the weight of equity, we divide the market value of equity by the total market value of the firm. The market value of equity is calculated by multiplying the number of shares outstanding by the share price. In this case, the weight of equity is approximately 99.57%.
b) The weight of debt is calculated similarly to the weight of equity. We divide the market value of debt by the total market value of the firm. The market value of debt is the product of the number of bonds outstanding and the bond price. In this case, the weight of debt is approximately 0.43%.
c) The cost of equity is calculated using the Capital Asset Pricing Model (CAPM). It takes into account the risk-free rate, beta, and the expected market return. Using the given values, the cost of equity for the firm is approximately 10.73%.
d) The after-tax cost of debt is calculated by multiplying the cost of debt by (1 - Tax rate). In this case, the after-tax cost of debt is approximately 4.37%.
e) The WACC is calculated by multiplying the weight of equity by the cost of equity and adding it to the product of the weight of debt and the after-tax cost of debt. The WACC for the firm is approximately 10.60%. The WACC represents the average rate of return required by the firm's investors, taking into account the relative weights of equity and debt in the firm's capital structure.
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Using the Sales Director's suggested changes, calculate the contribution per labour hour and suggest the price which is needed for the Specialist to be as profitable as the most profitable product per assembly hour (5 marks) e) Comment on the information you have prepared and explain how it could be used in decision making to result in greater profitability. (4 marks) (total 25 marks) d) Using the Sales Director's suggested changes, calculate the contribution per labour hour and suggest the price which is needed for the Specialist to be as profitable as the most profitable product per assembly hour (5 marks) e) Comment on the information you have prepared and explain how it could be used in decision making to result in greater profitability. (4 marks) (total 25 marks)
Without the specific information about the suggested changes, it is not possible to calculate the contribution per labor hour or suggest a profitable price for the Specialist product.
The information prepared, once provided, can be used in decision making to analyze the profitability of the Specialist product compared to the most profitable product per assembly hour. This analysis can help identify areas for improvement and potential pricing adjustments to maximize profitability. By considering the contribution per labor hour, management can evaluate the efficiency and profitability of each product and make informed decisions to optimize resource allocation, pricing strategies, and overall profitability of the company. This information enables data-driven decision-making, leading to greater profitability and improved performance.
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FoxFirst will provide new computer hardware, storage, business continuity, and end-to-end Remote & On-premise support for BobTheCat Enterprises • Who are the stakeholders in this project? • How would you describe a stakeholder? • Formulate a plan to inform the stakeholders
The stakeholders in this project would include FoxFirst, BobTheCat Enterprises, the employees of BobTheCat Enterprises, and the customers of BobTheCat Enterprises. A stakeholder is any individual or entity that is impacted by or has an interest in a project or organization.
Stakeholders can include customers, employees, shareholders, suppliers, government agencies, and the community. Formulating a plan to inform stakeholders would be an important step in ensuring the success of the project.
The plan should include the following steps: Identify the stakeholders: This involves creating a list of all individuals or entities that are affected by the project. It should include internal stakeholders such as employees and external stakeholders such as customers.
Develop a communication plan: This involves determining the best way to communicate with each stakeholder. This can include email, phone calls, meetings, or social media.
Prepare communication materials: This involves creating communication materials such as presentations, flyers, or brochures that provide information about the project. These materials should be tailored to the specific needs of each stakeholder.
Communicate with stakeholders: This involves reaching out to each stakeholder and providing them with relevant information about the project. It's important to provide regular updates and answer any questions or concerns that stakeholders may have.
Evaluate stakeholder feedback: This involves gathering feedback from stakeholders and using it to improve the project. It's important to address any concerns or issues that stakeholders raise to ensure that the project is successful.
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Most often, people reduce cognitive dissonance by doing which of the following? OA. pretending there were many alternatives to the selected decision. OB. seeking out and overemphasizing the negative aspects of the decision. O c. developing more favorable attitudes toward specific features of the decision. O D. reversing the decision that caused the dissonance.
Most often, people reduce cognitive dissonance by developing more favorable attitudes toward specific features of the decision. Option C.
How do people reduce cognitive dissonance?Cognitive dissonance refers to the conflict that arises when a person holds two contradictory beliefs or values and experiences psychological distress as a result. People tend to reduce cognitive dissonance in a number of ways, some of which are discussed below:
Developing more favorable attitudes toward specific features of the decision is a method of reducing cognitive dissonance. People can do this by emphasizing the positive aspects of the decision and downplaying or ignoring the negative aspects. This allows them to feel better about the decision they made and reduces the psychological distress they experience. For example, if a person chooses to buy a car that is more expensive than they can afford, they might focus on the car's safety features or the fact that it will be more reliable in the long run.
Pretending there were many alternatives to the selected decision is another way of reducing cognitive dissonance. This involves convincing oneself that there were other viable options available, even if they were not actually considered at the time. For example, a person might convince themselves that they could have bought a different car for a lower price if they had looked harder or that they could have waited until the car they wanted went on sale.
Seeking out and overemphasizing the negative aspects of the decision is also a method of reducing cognitive dissonance. This involves focusing on the negative aspects of the decision and exaggerating their importance. For example, a person might focus on the car's high price and how it will affect their finances, even if they can still afford it.
Reversing the decision that caused the dissonance is another way of reducing cognitive dissonance. This involves changing one's mind and making a different decision.
However, this is often difficult to do, especially if the decision has already been made and acted upon.
Hence, the correct answer is option C. Developing more favorable attitudes toward specific features of the decision.
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When oil companies expect oil prices to be higher next year, what happens to supply of oil today: Select one: a. No effect b. Supply of oil will decrease c. Supply of oil will increase d. Suppliers will look for other energy sources
When oil companies expect oil prices to be higher next year, the supply of oil today will increase.
When oil companies anticipate higher oil prices in the future, they have an incentive to increase their current supply of oil. This is because they can take advantage of the expected higher prices by selling more oil at a profitable rate. As a result, they may increase their exploration and drilling activities, invest in new oil wells, and ramp up production to meet the anticipated demand and benefit from the higher prices. Therefore, the expectation of higher future oil prices leads to an increase in the supply of oil in the present.
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On January 1, 2011, British Petroleum issued $100,000 in bonds having a stated interest rate of 10% annually. The bonds have a 10-year maturity and $10,000 interest is paid once annually on December 31 each year. The market interest rate on January 1, 2011, was 12% annually.
Compute the issue price of the above bonds issued by BP. (4 points)
Provide the proper journal entry to record the issue of BP’s bonds (3 points)
Provide the journal entry to record the interest payment at the end of 2011. (3 points)
The issue price of the bonds issued by British Petroleum (BP) on January 1, 2011, can be calculated using the present value of the bond's future cash flows. The main answer is $93,689.58.
The proper journal entry to record the issue of BP's bonds would involve debiting the Cash account for the issue price of $93,689.58 and crediting the Bonds Payable account for the face value of the bonds, which is $100,000.
Journal entry:
Debit: Cash $93,689.58
Credit: Bonds Payable $100,000
This entry reflects the inflow of cash from the bond issuance and the corresponding increase in the liability of BP to repay the bonds in the future.
The journal entry to record the interest payment at the end of 2011 would involve debiting the Interest Expense account for $10,000 and crediting the Cash account for the same amount.
Journal entry:
Debit: Interest Expense $10,000
Credit: Cash $10,000
This entry recognizes the expense incurred by BP for the interest payment and the corresponding outflow of cash to the bondholders.
The issue price of a bond is the present value of its future cash flows, which includes both the principal repayment and the interest payments. In this case, the bond has a face value (principal) of $100,000, a stated interest rate of 10% annually, and a maturity of 10 years. The interest is paid once annually on December 31 each year.
To calculate the issue price, we need to discount the future cash flows at the market interest rate. The market interest rate on January 1, 2011, was 12% annually. Using the present value formula, we can calculate the present value of the bond's future cash flows.
The present value of the principal repayment is $100,000 discounted back to January 1, 2011, at a rate of 12% for 10 years. This gives us $32,578.48.
The present value of the annual interest payments of $10,000 for 10 years can be calculated by discounting each payment back to January 1, 2011, at a rate of 12%. Summing up all the present values of the interest payments, we get $61,111.10.
Adding the present values of the principal repayment and the interest payments, we get the issue price of the bonds as $93,689.58.
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Our company forecasts to pay a $6 dividend next year, which represents 100% of its earnings. This will provide inw return on equity of 12%. What is the present value of growth opportunities (PVGO)?
a. 69.0
b. 25.0
c. 35.4
d. 11.8
Without the required rate of return, we cannot calculate the present value of growth opportunities (PVGO) in this question.
In this case, the ROE is given as 12% and the dividend payout ratio is 100% (meaning all earnings are paid out as dividends). Since the dividend is $6, we can assume the earnings per share (EPS) is also $6.
To calculate the PVGO, we need the required rate of return (r). Unfortunately, it is not provided in the question. Therefore, without the required rate of return, we cannot determine the present value of growth opportunities (PVGO).
The present value of growth opportunities (PVGO) is a measure that represents the value of future growth potential for a company. It can be calculated using the formula ;
PVGO = (ROE - r) * EPS,
where, ROE is the return on equity
r is the required rate of return
EPS is the earnings per share
However, in this question, we are given the dividend payout ratio and the dividend amount, but we do not have the required rate of return. Without this information, we cannot determine the present value of growth opportunities (PVGO).
In conclusion, without the required rate of return, we cannot calculate the present value of growth opportunities (PVGO) in this question.
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The other major area of organizational change addresses people, attitudes, and behavior. Changes to which of the following would relate to this category? Check all that apply.
a. Attitudes b. Work sequences
c. Expectations
d. Line-staff structure e. Overall design f. Performance
The changes related to people, attitudes, and behavior would include. a. Attitudes, c. Expectation, f. Performance
The changes related to people, attitudes, and behavior would include:
a. Attitudes: Attitudes play a crucial role in shaping behavior and can be targeted for change during organizational transformations.
c. Expectations: Setting new expectations for employees' behavior, performance, and roles can be part of organizational change efforts.
f. Performance: Changes in performance expectations, performance management systems, and performance evaluation processes can be implemented to drive desired behavior.
Please note that the other options listed (b. Work sequences, d. Line-staff structure, and e. Overall design) may also undergo changes during organizational transformations, but they are not directly related to people's attitudes and behavior, Hence are not required.
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What are the Objectives/Strategy & SMART GOALS of EXXON
MOBIL
The objectives/strategy and SMART goals of Exxon Mobil can be summarized as follows:
Exxon Mobil's main objective is to maximize shareholder value by efficiently and responsibly exploring, producing, and selling oil and gas products. Their strategy involves focusing on four key areas: operational excellence, technology leadership, portfolio optimization, and market-oriented investments.
By striving for operational excellence, Exxon Mobil aims to improve efficiency, reduce costs, and enhance safety and environmental performance. Technology leadership is achieved through continuous innovation and development of new technologies to extract resources more efficiently. Portfolio optimization involves managing and optimizing their diverse portfolio of assets. Market-oriented investments are made to meet the evolving energy needs of customers worldwide.
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Exercise Evaluation Principles
What principles should guide exercise evaluators? What is the
most important principle? Why? What type of pressures do evaluators
face and how can they avoid them?
Exercise evaluators should adhere to principles of objectivity, consistency, relevance, and validity. By doing so, they can provide accurate and meaningful feedback to improve future exercises.
Exercise evaluators should be guided by several principles to ensure effective evaluation processes.
The most important principle is objectivity.
Evaluators must strive to be unbiased and fair in their assessments, focusing solely on the quality and effectiveness of the exercise.
This principle ensures that evaluators provide accurate feedback that can be used to improve future exercises.
Other guiding principles include:
1. Consistency: Evaluators should use consistent criteria and standards when evaluating exercises. This helps ensure fairness and comparability between different evaluations.
2. Relevance: Evaluators should assess exercises based on their alignment with predefined objectives and desired outcomes. This principle ensures that exercises are evaluated in terms of their effectiveness in meeting specific goals.
3. Validity: Evaluators should use valid measures and methods to assess the exercise's effectiveness. This principle ensures that the evaluation accurately captures the desired outcomes.
Evaluators may face various pressures, such as time constraints, budget limitations, or organizational expectations. To avoid these pressures, evaluators can:
1. Establish clear evaluation criteria and standards beforehand to guide their assessments.
2. Maintain open communication with exercise organizers and stakeholders to manage expectations and address any concerns.
3. Seek external input or peer reviews to ensure objectivity and minimize biases.
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The four basic components of the marketing mix include all of the following except:a.priceb.productionc.productd.place
The four basic components of the marketing mix include price, product, and place, but not production.
The marketing mix comprises the key elements that organizations use to effectively market their products or services. These components are commonly known as the "Four Ps" of marketing: price, product, place, and promotion. Production is not typically considered one of the core elements of the marketing mix. Instead, it refers to the process of creating goods or delivering services.
The marketing mix focuses on strategic decisions related to pricing strategies (price), the goods or services offered (product), distribution channels and locations (place), and promotional activities to communicate with the target audience (promotion). These components work together to create a comprehensive marketing strategy that helps organizations achieve their marketing objectives.
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Which of the following statements concerning a monopolistically competitive industry is correch? Multiple Choice If there are short-run losses, firms will leave the industry and the demand curves of the remaining firms will shift to the left. If there are short-run economic profits, firms will leave the industry and the demand curves of the remaining firms will shift to the right. If there are short-run economic profits, firms will enter the industry and the demand curves of existing firms will shift to the right If there are short-run losses, firms will leave the industry and the demand curves of the remaining firms will shift to the right
The correct statement concerning a monopolistically competitive industry is "If there are short-run economic profits, firms will enter the industry and the demand curves of existing firms will shift to the right."
In a monopolistically competitive industry, firms have differentiated products and face a downward-sloping demand curve. When firms in this industry experience short-run economic profits, it attracts new entrants. The entry of new firms increases competition and leads to a shift in the demand curves of existing firms to the right. This shift occurs because consumers now have more choices and alternatives, which reduces the market share and demand for each individual firm's product. The increased competition erodes the economic profits of existing firms and brings them closer to the long-run equilibrium. Conversely, if firms in a monopolistically competitive industry experience short-run losses, some firms may exit the industry. The exit of firms reduces competition, allowing the demand curves of the remaining firms to shift to the right, potentially leading to a restoration of economic profits in the long run. However, the statement regarding short-run losses and the leftward shift of demand curves is not applicable to a monopolistically competitive industry.
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A firm has a capital structure that includes bonds and common stock. Which one of the following rights is most likely to be granted to bondholders?
1). none of the answer choices
2). right to a permanent seat on the board of directors
3). right to elect directors to the board
4). right to share in the company's profits prior to shareholders
The right to share in the company's profits prior to shareholders, Bondholders typically have a contractual claim to receive interest payments and principal repayments .
Before shareholders are entitled to receive dividends or other distributions. This means that bondholders have a priority claim on the company's profits over shareholders. If the company faces financial difficulties, bondholders have a higher priority in receiving their payments compared to shareholders. It's important to note that while bondholders have a right to share in the company's profits prior to shareholders, they do not have ownership rights or voting rights in the same way that shareholders do. Bondholders are creditors of the company, whereas shareholders are owners and have voting rights in corporate matters.
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a quote from the chapter 5 of Civilization and its Discontents in which Freud talks about "aggression." Briefly explain what Freud's point is in light of what he says in the whole chapter. And then give your thoughts or response to it.
Freud's exploration of aggression in "Civilization and Its Discontents" offers valuable insights into the human condition and the complexities of our aggressive impulses.
In Chapter 5 of "Civilization and Its Discontents," Sigmund Freud discusses the concept of aggression. One quote from this chapter that highlights Freud's point is when he states, "Aggression is the assertion of oneself, the feeling of one's own strength, and the striving for supremacy." In this chapter, Freud explores the idea that aggression is an inherent part of human nature and is driven by our desire for power and dominance.
Freud argues that civilization and its restraints on human behavior often lead to a buildup of aggressive impulses. He suggests that these aggressive instincts are necessary for survival and that society's attempt to suppress them can cause psychological distress. According to Freud, this repression of aggression contributes to the development of neurotic symptoms and even mental illness.
Freud also examines the ways in which aggression is channeled in society. He discusses how aggression can be redirected into productive activities, such as artistic expression or intellectual pursuits. However, he acknowledges that aggression can also manifest in destructive ways, such as warfare or criminal behavior.
In response to Freud's ideas, it is important to note that his theories have been widely debated and criticized. Some argue that Freud's view of aggression is overly deterministic and fails to consider individual differences and cultural influences. Additionally, Freud's emphasis on aggression as a primary motivator may overlook other factors such as empathy and compassion.
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Discuss whether the Fair Work Commission’s powers around enterprise bargaining processes and outcomes, including regulation of protected industrial action, are sufficient for contributing the Australia’s productivity growth and social equality?
The Fair Work Commission's powers are necessary because they help to ensure that employees receive fair wages, benefits, and working conditions, which is essential for reducing inequality in the workplace. Additionally, the Commission's powers contribute to productivity growth by preventing industrial action from damaging productivity.
The Fair Work Commission's powers are sufficient in contributing to Australia's productivity growth and social equality. The Fair Work Commission regulates and oversees enterprise bargaining processes and outcomes and has the authority to regulate protected industrial action, making sure that it is conducted in a fair and balanced way. The Fair Work Act provides the legal framework for enterprise bargaining, which establishes the minimum standards for all employees in the country. The Fair Work Commission's power is used to prevent industrial action from damaging productivity, which is why it is a key contributor to productivity growth. Enterprise bargaining agreements that have been reached through the commission have often contributed to higher productivity. In terms of social equality, the Fair Work Commission's powers are necessary because they help to ensure that employees receive fair wages, benefits, and working conditions, which is essential for reducing inequality in the workplace. Australia's Fair Work Commission regulates and oversees enterprise bargaining processes and outcomes and has the power to regulate protected industrial action. It is responsible for ensuring that employees receive fair wages, benefits, and working conditions, which is essential for reducing inequality in the workplace. In terms of productivity growth, the Fair Work Commission's powers are sufficient in contributing to Australia's growth. By preventing industrial action from damaging productivity, the Commission can ensure that businesses are operating effectively and efficiently. This is vital for contributing to Australia's productivity growth. Moreover, enterprise bargaining agreements that have been reached through the Fair Work Commission have often contributed to higher productivity.
The Fair Work Commission's powers around enterprise bargaining processes and outcomes, including regulation of protected industrial action, are sufficient for contributing to Australia's productivity growth and social equality. The Fair Work Commission's powers are necessary because they help to ensure that employees receive fair wages, benefits, and working conditions, which is essential for reducing inequality in the workplace. Additionally, the Commission's powers contribute to productivity growth by preventing industrial action from damaging productivity.
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List 5 platforms for sharing economy
Sharing economy refers to a system where individuals can borrow, rent or lease assets or services owned by other people or organizations. Platforms for sharing economy, allow people to monetize their assets and use them to generate income. Below are 5 platforms for sharing economy:
1. Airbnb: Airbnb is a platform that enables property owners to rent their homes, apartments, or other living spaces to travelers. Airbnb is a popular sharing economy platform.
2. Uber: Uber is an app-based platform that connects drivers with passengers. The drivers use their cars to transport passengers to their desired destination. Uber is a platform for sharing economy for transportation.
3. Etsy: Etsy is a platform for sharing economy that allows individuals to sell their handmade crafts, vintage items, and supplies. Etsy is an e-commerce platform.
4. TaskRabbit: TaskRabbit is a sharing economy platform that allows users to outsource their errands and odd jobs to other users on the platform. It's a platform for sharing economy that connects users with local workers for tasks.
5. Turo: Turo is a platform for sharing economy for car rental. It allows car owners to rent out their cars to other users on the platform. Turo is a peer-to-peer car-sharing platform.
Sharing economy platforms are becoming more popular across various industries. These platforms provide a way for individuals to monetize their assets and generate income. Airbnb, Uber, Etsy, TaskRabbit, and Turo are examples of platforms for sharing economy. Airbnb is a platform for sharing economy in the hospitality industry while Uber is a platform for sharing economy in the transportation industry. Etsy is a platform for sharing economy that enables people to sell their handmade crafts while TaskRabbit is a sharing economy platform for outsourcing errands and odd jobs. Turo is a platform for sharing economy that enables car owners to rent out their cars. Sharing economy platforms are expected to continue to grow as more people seek ways to earn extra income.
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[No-Arbitrage Determination of Forward Price (with Storage Cost)]
The information of the forward price and stock price is provided below:
Forward price F0 $26
Stock/Spot Price S0 $20
Storage Cost U $3
Maturity date of Forward Contract (1 year) T 1
Risk-free Rate r 4%
Step (1) By using the information above and applying the Cost-of-Carry Model (with Storage Cost), verify if there is an arbitrage opportunity. for No-Arbitrage determination of Forward Price with Storage Cost.
Step (2) In addition, clearly explain and illustrate the arbitrage ("Cash-and-Carry") strategy and compute the arbitrage profit. Hint: the "Cash-and-Carry" strategy (with Storage Cost) should demonstrate how a portfolio of forward, stock, and risk-free lending/borrowing can produce risk-free arbitrage profit.
The Cost-of-Carry Model is used to determine the fair price of a forward contract, taking into account the storage cost. In order to check for arbitrage opportunities, we need to compare the forward price derived from the Cost-of-Carry Model with the actual forward price provided.
Step (1): Using the Cost-of-Carry Model, we can calculate the fair forward price with storage cost as follows:
Fair Forward Price = Spot Price + Cost of Carry
The Cost of Carry includes the storage cost and the risk-free rate. In this case, the storage cost is $3 and the risk-free rate is 4%.
Spot Price (S0) = $20
Cost of Carry = Storage Cost + Risk-free Rate = $3 + 4% = $3 + $0.80 = $3.80
Fair Forward Price = $20 + $3.80 = $23.80
Comparing the fair forward price ($23.80) with the actual forward price ($26), we can see that the actual forward price is higher than the fair forward price. This indicates that there is no arbitrage opportunity in this case.
Step (2): The "Cash-and-Carry" arbitrage strategy involves taking advantage of the price difference between the spot price and the forward price. Here's how it works:
1. Borrowing: Borrow money to buy the stock at the spot price.
2. Storage Cost: Pay the storage cost to hold the stock until the forward contract matures.
3. Sell Forward: Sell the stock in the forward market at the higher forward price.
4. Repay Loan: Use the proceeds from the forward sale to repay the loan.
5. Arbitrage Profit: The profit is the difference between the forward price and the spot price, minus the storage cost and any borrowing costs.
In this case, since the actual forward price is higher than the fair forward price, there is no arbitrage opportunity. Therefore, there would be no profit to be made using the "Cash-and-Carry" strategy.
To summarize, based on the given information, there is no arbitrage opportunity because the actual forward price is higher than the fair forward price. The "Cash-and-Carry" strategy cannot be utilized to make risk-free profits in this scenario.
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