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1. Interest Rates. How do interest rates affect economic growth? Why do interest rates affect some stock prices more than others? Which federal agency influences interest rates?
2. Inflation. What is inflation? How is inflation measured? How does inflation affect stock prices?
A stock has had the following year-end prices and dividends: Year Price Dividend 1 $ 43.45 - 2 48.43 $ .72 3 57.35 .75 4 45.43 .80 5 52.35 .85 6 61.43 .93 What are the arithmetic and geometric returns for the stock?
Show that if the option is a put rather than a call the discount rate is -52:5%.- Explain why the two real-world discount rates are so different.
(Net present value calculation) Big Steve’s, makers of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $100,000 and will generate net cash inflows of $18,000 per year for 10..
Jordan Enterprises is considering a capital expenditure that requires an initial investment of ?$48,000 and returns? after-tax cash inflows of ?$8,144 per year for 10 years. The firm has a maximum acceptable payback period of 8 years.
You have decided to invest 30 percent in X; 30 percent in Y; and 40 percent in Z. The probability of the state of the economy is Boom 25%; Normal 60%; and, Bust 15%. The rate of return for stock X is Boom .20; Normal .15; and, Bust .00. What is the p..
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 3.0%. Expected return and Standa..
GDP is determined based on spending on goods and services (not on financial investments; nor transfers from one entity to another) or anticipation of such spending by:
It is July and a trader buys 100 December call options with a strike price of $26. The stock price is $26.51 and the option price is $4.12. At the expiration, the stock price becomes $30.22. Calculate the option profit to the trader. Please show your..
If a limited-pay whole life insurance policy is determined to be a “MEC” (Modified Endowment Contract): Select one: a. cash value increases cease immediately b. distributions, including policy loans, will likely be includable in income c. death benef..
Companies raise long-term funds or capital for new projects through which of the following markets? The federal reserve is the governmental organization responsible for______. An increase in the value of the dollar relative to all foreign currencies ..
Suppose the forward rate satisfies f(0, T1, T2) > [B(0,T1) / B(0,T2)] - 1. Write down, showing all details, an arbitrage strategy that yields a risk-less profit of (1 + f(0, T1, T2)) - B(0,T1) / B(0,T2) dollars.
Using a 4.4% discount rate, calculate the Net Present Value, Payback, Profitability Index and IRR for the following projects. Assuming a budget of $1,200,000 what are your recommendations for the three projests. assuming a budget of $2,000,000 what a..
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