Choose the letter of the correct answer with explanation 1. A financial gain, especially the difference between the amount earnedand the amount spent in buying, operating, or producing something.A. CostB. ExpensesC. ProfitD. Sales2. The exchange of a commodity for money; the action of selling something.A. CostB. ExpensesC. ProfitD. Sales3. An amount that has to be paid or spent to buy or obtain something.A. CostC. ProfitB. ExpensesD. Sales4. The difference of Net Sales and Cost, when the Net Sales is less than itsCost.C. ProfitD. SalaryA. Break-evenB. Loss5. Nathaniel bought an aircon for Php35,000 and spent Php1,500 on itsinstallation. He later sold it for Php37,000. How much is Nathaniel's profit orloss?A. Break-even of Php500B. Loss of Php500C. Gain of Php500D. Profit of Php500

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Answered: 1. A financial gain, especially the…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter11: Simulation Models

Section11.3: Financial Models

Problem 22P: In the financial world, there are many types of complex instruments called derivatives that derive...

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Suppose you are borrowing 25,000 and making monthly payments with 1% interest. Show that the monthly payments should equal 556.11. The key relationships are that for any month t (Ending month t balance) = (Ending month t 1 balance) ((Monthly payment) (Month t interest)) (Month t interest) = (Beginning month t balance) (Monthly interest rate) Of course, the ending month 60 balance must equal 0.
In the financial world, there are many types of complex instruments called derivatives that derive their value from the value of an underlying asset. Consider the following simple derivative. A stocks current price is 80 per share. You purchase a derivative whose value to you becomes known a month from now. Specifically, let P be the price of the stock in a month. If P is between 75 and 85, the derivative is worth nothing to you. If P is less than 75, the derivative results in a loss of 100(75-P) dollars to you. (The factor of 100 is because many derivatives involve 100 shares.) If P is greater than 85, the derivative results in a gain of 100(P-85) dollars to you. Assume that the distribution of the change in the stock price from now to a month from now is normally distributed with mean 1 and standard deviation 8. Let EMV be the expected gain/loss from this derivative. It is a weighted average of all the possible losses and gains, weighted by their likelihoods. (Of course, any loss should be expressed as a negative number. For example, a loss of 1500 should be expressed as -1500.) Unfortunately, this is a difficult probability calculation, but EMV can be estimated by an @RISK simulation. Perform this simulation with at least 1000 iterations. What is your best estimate of EMV?

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