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1) Define what we mean by money and how it is used in the day to day functioning of the U.S. economy. Be sure to include the major components that make up what is defined as money and which of these components is used most widely to identify what money is. Also, include the major functions that money serves as a part of the overall economy and how banks act to create and maintain money.
2) Name and discuss the four major theories that address the term structure of interest rates. In your discussion, indicate the strengths and weaknesses of each of the theories and which theory or theories appear to be the most well accepted as explanations of term structure.
3) Explain the role that money plays under the Classical Macroeconomic Model. As a part of your discussion, include the impact the Quantity Theory of Money and Say's Law have on this model and state in algebraic terms how the money supply relates to prices.
4) Compare and contrast pure discount bonds with coupon bonds and provide at least one example of such government or corporate bonds that can be bought and sold by investors. Describe the way interest rates are determined for these bonds by using the appropriate formula or formulas and explain the overall relationship between bond prices and interest rates.
Assume your marketing people have a great plan to boost the unit sales. Unit sales rise to 500,000, but the plan requires your firm to drop the price to $29,000/unit and the marketing will cost your firm $300 million total.
The current level of the index is 400, the risk-free rate is 6% per annum, the dividend yield on the index is 4% per annum, and the volatility of the index is 20%. Use DerivaGem to value the option.
What is the value of a 5-year swap where LIBOR is paid in the usual way and in return LIBOR compounded at LIBOR is received on the other side?
Use the simplex method to minimize 3x1 +x2 subject to x1 +x2 ≥ 2, x1 + 3x2 ≥ 3, and x1, x2 ≥ 0.- Add surplus variables x3, x4 to convert the constraints to equations,
A firm is considering a new project that will generate cash revenue of $1,000,000 and cash expenses of $700,000 per year for five years. The equipment necessary for the project will cost $200,000 and will be depreciated straight line over four yea..
What relationships hold between the prices at time t ≤ T of the call ladder, butterfly and condor with common maturity T?
Modify Sample Application G in the DerivaGem Application Builder software to test the convergence of the price of the trinomial tree when it is used to price a 2-year call option on a 5-year bond with a face value of 100.
A firm expects to earn $3.50 per share during the current year, its expected dividend payout ratio is 65%, its expected constant dividend growth rate is 6.0%, and its common stock currently sells for $32.50 per share.
What is the yield to maturity on a Treasury STRIPS with 7 years to maturity and a quoted price of 65.492
the following data relate ti inventory for the year ended December 31, 2011. A physical inventory on December 31,2011, indicates that 600 units are on hand that they came from the July 1 purchase.
The venture would result in an increase in accounts receivable and inventories of $4,000,000. At the end of the 6-year life span, you estimate that the equipment could be sold at a $4,000,000 salvage value.
In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the "terminal" stock price using a benchmark PE ratio.
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