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1. It is difficult to measure the true increase in prices of goods whose characteristics change over time. For such goods, part of any price increase can be attributed to an increase in quality. Hedonic pricing offers a method to compute the quality-adjusted increase in prices.
Consider a case of a routine medical checkup for a pregnant woman. Suppose that a new ultrasound method is introduced. A checkup using the new method costs 10% more than a checkup using the old method.
Suppose that in the first year the new ultrasound method is available, half of doctors offer the new method, and half offer the old method. In addition, suppose that the price of checkups using the new method is 15% higher than the price of checkups using the old method (which is the same as the price of checkups in the previous year when everyone used the old method). How much of the higher price for checkups in this year represents a true price increase and how much represents a quality increase?
Suppose instead, that in the first year new ultrasound method is available, all doctors adopt the new method and the old method is no longer in use. Continue to assume that the price of checkups using the new method is 15% higher than the price of checkups in the previous year Then in this case, how much of the higher price for checkups in this year represents a price increase and how much represents a quality increase? Explain whether your calculation in this case is an over- or under-estimation of the true price increase.
You need a 35-year, fixed-rate mortgage to buy a new home for $310,000. Your mortgage bank will lend you the money at an APR of 6.05 percent for this 420-month loan. How large will this balloon payment have to be for you to keep your monthly payments..
What types of securities are banks prohibited from buying for investment purposes?
Monetary theory examines the role of excess reserves (actual reserves minus required reserves) in influencing economic activity and Federal Reserve monetary policy. Viewed in the context of a single bank, excess reserves are difficult to measure. Exp..
You are evaluating two different silicon wafer milling machines. The Techron I costs $261,000, has a three-year life, and has pretax operating costs of $70,000 per year. The Techron II costs $455,000, has a five-year life, and has pretax operating co..
Using a 0.05 level of significance, is there evidence of a significant difference between the two methods in the proportion of fair ratings?
Our company is Target? First search the Yahoo finance and find the target data? Use dividend discount model to calculate the cost of equity Explain and conceptually justify your assumption for future dividend growth rate
You are given that a stock has current value of 34 and has a dividend rate of \delta= 0.02. The risk free rate is 0.05. You are given that the price of a one year call with strike 35 is 2.12. You also know the price of a one year up and input with ba..
An analyst has collected the following information about Franklin Electric: Projected EBIT for the next year is $300 million. Projected depreciation expense for the next year is $50 million. Projected capital expenditures for the next year is $100 mi..
Best Western has $1,000 face value bonds outstanding. These bonds pay interest semi-annually, mature in 10 years, and have a 5 percent coupon. The current price is quoted at 95.5. What is the YTM? %?
Percy Motors has a target capital structure of 40% debit and 60% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 9, and its tax rate is 40%. Percy's CFO estimates that the company's WACC is 9.96% Wh..
A manufacturer of video games develops a new game over two years. This costs $850,000 per year with one payment made immediately and the other at the end of two years. When the game is released, it is expected to make $1.2 million per year for three ..
A local finance company quotes an interest rate of 17 percent on one-year loans. So, if you borrow $31,000, the interest for the year will be $5,270. What interest rate would legally have to be quoted? What is the effective annual rate?
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