Essay on Futures and Options Chapter 9 Answer

1. If we ignore tax considerations and assume that Sally is free to sell options at any time after her joins Telstar, which compensation package is worth more?

1. a. The simulation indicates that 584 is the optimum stocking quantity. Daily profit at this stocking quantity is $331.4346.

17. St. Augustine Company is trying to decide which one of two contracts it will accept. The costs and revenues associated with

1. Noelle quits her $80,000-a-year job to stay home. What is the opportunity cost of her decision?

1. Clarissa is considering two job offers. One has an annual salary of $61.1K and the other

2. St. Luke’s Convalescent Center has $200,000 in surplus funds that it wishes to invest in marketable securities. If transaction costs to buy and sell the securities are $2,200 and the securities will be

c) The present value of $500 to be received in one year when the opportunity cost rate is 8 percent (discounting):

4. If Ms. Jameson decided that the option was a better deal, but was concerned with being too committed and reliant on the fortunes of Telstar, she could modify her compensation package to better suit her individual needs. Ms. Jameson would be taking considerable risk by keeping all of her bonus in Telstar for stock options with such a lengthy expiration date and also due to the historical data of Telstar showing that only stock prices reached $35 (the exercise price) only once.

General Foods is a large corporation organized by product lines. They are evaluating Super Project, the manufacture of a new powdered dessert. Crosby Sanberg, a financial analysis manager, must determine the value in accepting the proposal, along with J.C. Kresslin, the Corporate Controller. The Super Project will increase profit with a payback period of less than ten years. The proposed capital investment for the project is $200,000 ($80,000 for building modifications and $120,000 for machinery and equipment) and production would take place

Homework 2 Solution, Fin 500Q, Quantitative Risk Management 1. Assume gold price risk is diversifiable, and the riskless rate is 5%. A firm produces a unit of gold a year from today. Assume all interest is compounded annually and is tax deductible. The price of gold is either $500 or $200, each with probability 0.5. Suppose the firm pays taxes at a rate of 40% for all its cash flow in excess of $300. The value of the firm is the expected discounted value of its cash flow less the expected discounted value of bankruptcy costs and taxes that it pays. The firm can hedge by buying/selling forward contracts on gold. Start by assuming that bankruptcy costs are zero. (a) Find the value of the unhedged unlevered firm. (10 points) Answer: 1 · [350 − 0.5 ·

““The name of the game, moving money from your clients pocket to your pocket”, Mark stated. “But if you can make your clients money at the same time it’s advantageous to everyone, correct?” “No, Mark replied…Okay, first rule of Wall Street-nobody and I don’t care if you are Warren Buffet or Jimmy Buffet- knows if a stock is going up, down or sideways, least of all stock brokers. But we have to pretend we know.”” (8)

* There will be 4 outcomes with the ‘in the money’ and ‘out of money’ positions and high and low sales volume (30000 or 10000).

9.     She got the 51% of the equity where as she only had to invest 25% of the total amount being invested

There are several factors to be considered to calculate the present values (PV) of the first options are: His annual salary at the firm is $60,000 per year, and his salary expected to increase at 3 % per year until retirement, his current average tax rate is 26 % and discount rate is 6.5 percent.

(15 points) Jessica is in the market for a new car. She has narrowed her search down to 2 models. Model A costs $20,000 and Model B costs $18,000. With both cars she plans to pay cash and own them for 5 years before trading in for a new car. Her research indicates that the trade in value for Model A after 5 years is 50% of the initial purchase price. The trade in value for Model B is 25%. Jessica has no emotional attachment to either model and wants to make a strictly financial