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Hedging Decisions
Your company has invested $6 million in a new Trilithium crystal technology project. The company will generate huge profits if the project is successful. As a risk hedge, the CFO decides to purchase equal risk derivatives. She buys two hundred 1-year put option contracts with an exercise price of $50. The cost of the option is $3.50 per share. Eight months later, the Trilithium crystal project is a big success and the current price of the underlying security is $66. She decides to sell the option at that time for $1.25 per share. How much has she made (or lost) on the hedging decision?
Early Classical economists found the subsiquent diamond/water paradox perplexing.
Describe and graph (using AD/AS framework) an example in today's news of fine tuning economy. Assume the MPC in an economy is 0.8, the APC is 0.8 and disposable income is $9 billion. If disposable income increases to $14 billion, what is the new le..
In using the Taylor Rule as a guideline for monetary policy, what are the pros and cons of using forecasted values of inflation and output rather than observed values of these variables?
Consider the Figure below that represents a perfectly competitive firm
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Suppose that the car manufacturer allows the car dealer to return all unsold cars at the end of a recessionary year. What is the car dealer's profit in a growth year and in a recession? What is their expected profit?
Describe ways firms establish barriers to entry and explain how they benefit firms but not consumers.
Impact of technology advance a monopolist has the following demand function: Solve for the price and quantity that the monopolist would choose to minimize its profit. And also calculate the resulting profit.
Prove that a risk-averse von Neumann-Morgenstern perticular will over-insure, fully-insure, or under-insure according as the insurance is available
Determine the profit-maximizing prices both firms will charge. In addition, calculate the price-cost margin for each firm and indicate which has more pricing power and why.
Explain how does the Central Bank measure the money supply in the contary. Does the Central Bank have an interest rate policy.
Customer demand for gasoline changes when the price of gasoline falls.
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