Problem 2: Consider the following cash flows M -10,000 -$10.000 -$10.000 S6000 $5000 S7000 2 $2000 $3500 S5000 3 $5000 $6200 $8500 Assume cash flows follow normal distribution and risk-free interest rate of 10%. A. Find the probability that the cash flow at year 2 is less than $3550. B. Find the probability that the PW will be negative.
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- QUESTION 6 The following is a payoff table giving profits for various situations. State 1 State 2 State 3 Probability 0.4 0.35 0.25 Alternative 1 45 37 83 Alternative 2 16 59 72 Alternative 3 23 65 91 Alternative 4 44 33 55 If a person were to use the expected monetary value criterion, what decision would be made? Alternative 1 Alternative 2 Alternative 3 Alternative 4Question 5: A department store prints scratch-and-save discount coupons to distribute to its customers. The numbers for each present discount are shown in the table. Present Discount Number of Each type of discount Available 60% 50 50% 25000 30% 50000 10% 500,000 Determine the expected percent discount.The following data were taken from Miller Company's balance sheet: Dec. 31, Year 2 Dec. 31, Year 1 Total liabilities $150,000 $105,000 Total stockholders' equity 75,000 60,000 a. Compute the ratio of liabilities to stockholders' equity. Round your answers to one decimal place. Liabilities toStockholders' Equity 12/31/Year 2: fill in the blank 1 12/31/Year 1: fill in the blank 2 b. Has the creditors' risk increased or decreased from December 31, Year 1, to December 31, Year 2?
- Problem #01: Arrivals of a customers to payment counter in a bank follow poisson distribution with an average of 10 per hour. The service time follows negative exponential distribution with an average of 4 minutes.(a) What is the average number of customers in the Queue?(b) The bank will open one or more counter when the waiting time of a customer is at least 10 minutes. By how much the flow of arrivals should increase in order to justify the second counter? Problem #02: On the desk of an office of a Banking Company, the arrivals of the customers follow poisson law and an average at every 10 minutes a customer arrives. The officer responsible takes on an average 6 minutes to serve a customer, assuming the exponentially distributed. Find out the average arrival rates for(a) 1 hour(b) 15 minutes(c) 8 hoursQuestion 4 (Part B a-c)A petrol station in the capital Kingstown has a single pump manned by one attendant. Vehicles arrive at the rate of 20 customers per hour and petrol filling takes 2 minutes on an average. Assume the arrival rate is Poisson probability distribution and service rate is exponentially distributed. Arrivals tend to follow a Poisson distribution, and service times tend to be exponential. The attendant is paid $10 per hour, but because of lost goodwill and sales, station loses about $15 per hour of customer time spent waiting for the attendant to service and order. The Petrol station is considering adding a second pump with an attendant to service customers. The station would pay that person the same $10 per hour. What is the probability that no customers are in the system (Po)?b. What is the average number of customers waiting for service (Lq)?c. What is the average number of customers in the system (L)? SHOW ALL WORKINGSProblem 4-25 The Gorman Manufacturing Company must decide whether to manufacture a component part at its Milan, Michigan, plant or purchase the component part from a supplier. The resulting profit is dependent upon the demand for the product. The following payoff table shows the projected profit (in thousands of dollars): State of Nature Low Demand Medium Demand High Demand Decision Alternative s1 s2 s3 Manufacture, d1 -20 40 100 Purchase, d2 10 45 70 The state-of-nature probabilities are P(s1) = 0.35, P(s2) = 0.35, and P(s3) = 0.30. Use a decision tree to recommend a decision.Recommended decision: _____________(manufacture component or purchase component) Use EVPI to determine whether Gorman should attempt to obtain a better estimate of demand. _____________(yes or No) EVPI: $ ________________ (fill in the blank) A test market study of the potential demand for the product is expected to report either a favorable (F) or unfavorable (U) condition. The relevant…
- Question 3 The Bank of Canada is interested in studying the relationship between mortgage rates and median home prices. The data is provided below Year Interst rate Median home price 1988 10.30 183,800 1989 10.30 183,200 1990 10.10 174,900 1991 9.30 173,500 1992 8.40 172,900 1993 7.30 173,200 1994 8.40 173,200 1995 7.90 169,700 1996 7.60 174,500 1997 7.60 177,900 1998 6.90 188,100 1999 7.40 203,200 2000 8.10 230,200 2001 7.00 258,200 2002 6.50 309,800 2003 5.80 329,800 2004 5.80 431,000 2005 5.80 515,000 2006 6.40 537,000 2007 6.30 496,000 2008 6.00 352,000 2009 5.00 232,000 2010 4.70 291,700 2011 4.40 262,900 2012 3.60 299,200 2013 4.00 321,200 2014 4.10 373,500 2015 3.80 358,100 2016 3.60 382,500 2017 4.00 402,900 a) Estimate a…Consider the following table containing yields for mutual funds in different asset classes (small, mid, and large cap). Fund Yield by Asset Class Small Cap Mid Cap Large Cap Fund Yield (%) Fund Yield (%) Fund Yield (%) Explorer Value 2.04 Capital Value 0.96 Equity Income 3.24 Small-Cap Value Index Admiral 2.46 Mid-Cap Value Index Admiral 1.57 High Dividend Yield Index 3.50 Small-Cap Index Admiral Shares 1.49 Extended Market Index Admiral Shares 1.22 500 Index Admiral Shares 1.57 Strategic Small-Cap Equity 0.38 Mid-Cap Index Admiral Shares 1.52 Diversified Equity 1.23 Explorer 0.17 Mid-Cap Growth 2.76 FTSE Social Index 1.42 Small-Cap Growth Index Admiral 0.21 Capital Value 0.32 Growth Equity 2.52 Explorer Value 2.55 Strategic Equity 1.54 U.S. Growth 0.37 Small-Cap ETF 1.44 Capital Opportunity Admiral Shares 2.14 Windsor 1.64 sum of squares for treatmentssum of squares for error≈1.5986≈18.4205 Step 2 of 2 : Find the mean square for treatments. Round…Question 3 (Minimum-variance Hedging) A farmer has a crop of grapefruit juice that will be ready for harvest and sale as 150000 pounds of grapefruit juice in 3 months. He is worried about possible price changes, so he is considering hedging - a financial engineering technique that minimizes future uncertainties in the cash flow. Typically, hedging is carried out using futures contract. However, unfortunately, there is no futures contract for grapefruit juice, but there is a futures contract for orange juice. Still, the farmer might consider using the futures contract for orange juice as a replacement for futures contract for grapefruit juice, in the hope that these two contracts are highly correlated due to the similarity of the underlying products. Currently, the spot prices are $1.20 per pound for orange juice and $1.50 per pound for grapefruit juice. The standard deviation of the prices of orange juice and grapefruit juice is about 20% per year, and the correlation coefficient…
- ] Consider the following table containing yields for mutual funds in different asset classes (small, mid, and large cap). Fund Yield by Asset Class Small Cap Mid Cap Large Cap Fund Yield (%) Fund Yield (%) Fund Yield (%) Explorer Value 1.22 Capital Value 0.96 Equity Income 3.24 Small-Cap Value Index Admiral 2.46 Mid-Cap Value Index Admiral 0.52 High Dividend Yield Index 3.50 Small-Cap Index Admiral Shares 1.49 Extended Market Index Admiral Shares 1.22 500 Index Admiral Shares 0.52 Strategic Small-Cap Equity 2.61 Mid-Cap Index Admiral Shares 1.52 Diversified Equity 1.23 Explorer 0.17 Mid-Cap Growth 0.82 FTSE Social Index 1.42 Small-Cap Growth Index Admiral 0.21 Capital Value 0.32 Growth Equity 1.42 Explorer Value 1.32 Strategic Equity 1.54 U.S. Growth 0.37 Small-Cap ETF 1.44 Capital Opportunity Admiral Shares 1.27 Windsor 1.64 sum of squares for treatmentssum of squares for error≈1.7894≈15.7229 Step 1 of 2 : What are the degrees of freedom…Question 3 The Bank of Canada is interested in studying the relationship between mortgage rates and median home prices. The data is provided below Year interest rate (%) 1988 10.30 1989 10.30 1990 10.10 1991 9.30 1992 8.40 1993 7.30 1994 8.40 1995 7.90 1996 7.60 1997 7.60 1998 6.90 1999 7.40 2000 8.10 2001 7.00 2002 6.50 2003 5.80 2004 5.80 2005 5.80 2006 6.40 2007 6.30 2008 6.00 2009 5.00 2010 4.70 2011 4.40 2012 3.60 2013 4.00 2014 4.10 2015 3.80 2016 3.60 2017 4.00 Median home price $183,800 $183,200 $174,900 $173,500 $172,900 $173,200 $173,200 $169,700 $174,500 $177,900 $188,100 $203,200 $230,200 $258,200 $309,800 $329,800 $431,000 $515,000 $537,000 $496,000 $352,000 $232,000 $291,700 $262,900 $299,200 $321,200 $373,500 $358,100 $382,500 $402,900 a) Estimate a simple linear regression model and find the value of the parameters for the estimation of mortgage rates and the median home price b) Interpret the intercept and the slope coefficients…Question 2 As an investor, would you rather be in a situation that involves no risk at all? Formulate your response in light of the ongoing pandemic and how it may have affected various type of businesses favorably and unfavorably. How would you classify pandemic risk – systematic or unsystematic.
