267. Suppose you invest $5,000 of your own money in shares of a company and choose to leverage that investment using a 5:1 ratio. If the price of the shares decreases by 10%, by how much has your invested money decreased, assuming no other fees? O $500 O $1,500 O $2,500 $5,000
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- Refer question 1 and answer both the questios Question 1 Afrm raises capital to invest in a business project. The marginal revenue fromthe first 5 units of capital is: 1st unit has MR $1.64, 2nd unit has MR 1.41, 3rdunit has MR 1.30, 4th unit has MR 1.23, and 5th unit has MR 1.18. If the interestrate is 26%, what is the optimal amount of capital for this firm to borrow?O. 2O. 3O. 4O .5 Question 2 Consider the MR figures in Problem 1. If this firm borrows exactly 5 units ofcapital, what is the firm's total revenue?O. 6.05O. 6.76O. 6.89O. 7.14Label each of the following behaviors with the correct bias or heuristic. LO8.3 a. Your uncle says that he knew all along that the stock market was going to crash in 2008. b. When Fred does well at work, he credits his intelligence. When anything goes wrong, he blames his secretary. c. Ellen thinks that being struck dead by lightning is much more likely than dying from an accidental fall at home. d. The sales of a TV that is priced at $999 rise after another very similar TV priced at $1,300 is placed next to it at the store. e. The sales of a brand of toothpaste rise after new TV commercials announce that the brand “is preferred by 4 out of 5 dentists.”3.Suppose that you observed the following set of data: Average Business School tuition: $30,000 Average Salary for non-MBA’s: $50,000 per year Average MBA salary: $90,000 per year. The length of an MBA program is 2 years and is assumed that and MBA will have a working career of 20 years after graduation. Further, suppose that, instead of going to get an MBA,2you could keep your current non-MBA job and invest what you could have used to pay for tuition, risk free, at 4% per year.SHOW ALL YOUR WORKING.a) Is this set of data consistent with market equilibrium? Explain.b) If your answer to (a) is no, how will markets adjust?
- 3. You are in the market for a used car and decide to visit a used car dealership. Youknow that the Blue Book value of the car you are looking at is between $14,000 and$18,000.a. If you believe the dealer knows as much about the car as you do, how much areyou willing to pay? Why? Assume that you care only about the expected value ofthe car you will buy and that the car values are symmetrically distributed.b. Now you believe the dealer knows more about the car than you do. How much areyou willing to pay? Why? How can this asymmetric information problem beresolved in a competitive market?As and example of a possible investment restriction, an insurer mah only be allowed to invest up to 20 percent of its assets in common stock. What penalty is imposed upon the insurer that invests 30 percent of available assets in common stock?A. The additional 10 percent must be disposed of by year endB. The state regulators would impose a 10 percent fine on the insurer.C. The additional 10 percent would be a nonadmitted asset.D. The additional 10 percent would only be listed at cost.A Company's stock currently pays a dividend of $5 dollars per year and you expect that dividend to grow by 3% every year, forever, such that next year you expect the dividend to be 5.15, to be 5.3045 the year after that, and so on. If your discount rate is 9%, a fair price for this stock today is_____.If your discount rate were to fall to 7%, holding all else the same, the fair price of the stock would increase to_________.
- 4 What is the economic advantage to a trade secret? Please explain why. Of the three valuation methods for an intangible asset discussed in the chapter, which one would you use and why? Regarding Stock Price, explain how it is set at the time of company formation. Describe the key factors that influence stock price before IPO. What is goodwill and how is it different from other intangible assets?INV 1 5ai Suppose that you have the following utility function: U=E(r) – ½ Aσ2 and A=3 Suppose that you have $10 million to invest for one year and you want to invest that money into ETFs tracking the S&P 500 (US) and S&P/TSX 60 (Canada) index, which are often used as proxies for the US and Canadian stock markets, respectively, and the Canadian one-year T-bill. Assume that the interest rate of the one-year T-bill is 0.35% per annum. You have found two ETFs that you are interested in. From a set of their historical data between 2001 and 2019, you have estimated the annual expected returns, standard deviations, and covariance as follows: ETFUS : E(r)= 0.070584 standard deviation = 0.173687 ETFCDA : E(r)= 0.073763 standard deviation = 0.16816 Covariance between ETFUS and ETFCDA = 0.02397 What is the portfolio expected return for ETFUS?"Companies should use investment entry modes whenever possible because they offer the greatest control over business operations." Do you agree or disagree with this statement? Are there times when other market entry modes offer greater control? How (if at all) do you think a company's product influences the choice of entry mode? Cite the example of 2 products that would influence the choice of entry mode in a different way.
- 6. An investor purchases a 30-year U.S. government bond for $840. The bond’s couponrate is 10 percent and, it still had twelve years remaining until maturity. If the investorholds the bond until it matures and collects the $1000 par value from the Treasuryand his marginal tax rate is 25 percent (we assume that the bond is taxable), what willbe his after-tax (effective) yield to maturity? Make sure to show your work.1. When the price of the underlying financial instrument exceeds the exercise [strike] price of a call option, the option is said to be: *a. ripe for a put.b. out of the running.c. in the money.d. dead on the money. 2. An option that gives the holder the right to sell a stock at a specified price at some time in the future is called a (n) *a. Put optionb. Covered optionc. Out of the money optiond. Call option 3. When a company proposes to issue its shares to its existing shareholders, it is called a (n) *a. Rights issueb. Initial public offeringc. Private placementd. Secondary issuanceINV 1 5aiv Suppose that you have the following utility function: U=E(r) – ½ Aσ2 and A=3 Suppose that you have $10 million to invest for one year and you want to invest that money into ETFs tracking the S&P 500 (US) and S&P/TSX 60 (Canada) index, which are often used as proxies for the US and Canadian stock markets, respectively, and the Canadian one-year T-bill. Assume that the interest rate of the one-year T-bill is 0.35% per annum. You have found two ETFs that you are interested in. From a set of their historical data between 2001 and 2019, you have estimated the annual expected returns, standard deviations, and covariance as follows: ETFUS : E(r)= 0.070584 standard deviation = 0.173687 ETFCDA : E(r)= 0.073763 standard deviation = 0.16816 Covariance between ETFUS and ETFCDA = 0.02397 What is the standard deviation for ETFCDA?