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Jackie spends her money on food and all other goods. Right now, she has an income of $600 per month. Compare two alternative welfare programs in which she could participate: program A would provide her with a monthly check of $300, and program B would provide her with $400 a month in credits that can be spent only on food.
a. Draw Jackie's budget constraints in each of these two cases.
b. Draw representative indifference curves that would reflect each of these three scenarios:(i) Jackie prefers program A to program B.
(ii) Jackie prefers program B to program A.
(iii) Jackie is indifferent between the two programs.
Sqeekers Co. issued 11-year bonds a year ago at a coupon rate of 8.9 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 7.2 percent, what is the current bond price?
Discuss the generalization that an option's time premium is positive. What is the major diference between an option and a futures contract?
Suppose you invest $10,000 in a savings account earning 2% interest (compounded yearly) with no risk. After 7 years, how much will you have? but this time there is an inflation rate of 4%. How does this change your overall return on investment?
Project K costs $35,000, its expected cash inflows are $12,000 per year for 8 years, and its WACC is 9%. What is the project's payback?
A high-precision programmable router for shaping furniture components is purchased by Henredon for $180,000. It is expected to last 12 years. Calculate the depreciation deduction and book value for each year using MACRS-GDS allowances. What is the MA..
You find a certain stock that had returns of 15.4 percent, –22.7 percent, 28.7 percent, and 19.7 percent for four of the last five years. Assume the average return of the stock over this period was 13.40 percent. What is the standard deviation of the..
The $1,000 face value bonds of Jasper International have a 7.5 percent coupon and pay interest annually. Currently, the bonds are quoted at 98.27 and mature in 3.5 years. What is the yield to maturity?
What is the formula for the intrinsic value of a call? What was the intrinsic value of the Dec. 118 call? Was this option “in the money” or “out of the money”? What was the time value of this option?
A stock has an expected return of 12.2 percent, the risk-free rate is 4 percent, and the market risk premium is 10 percent. What must the beta of this stock be?
Retirement planning Hal Thomas, a 25-year-old college graduate, wishes to retire at age 65. To supplement other sources of retirement income, he can deposit $2,000 each year into a tax-deferred individual retirement arrangement (IRA). The IRA will ea..
You are planning to save for retirement over the next 25 years. To do this, you will invest $700 a month in a stock account and $300 a month in a bond account. The return of the stock account is expected to be 9 percent, and the bond account will pay..
You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 17 percent, –4 percent, 20 percent, 12 percent, and 10 percent. What was the arithmetic average return on Crash-n-Burn’s stock over this five-year period..
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