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Suppose that you believe that recent strong employment data (~ 180,000 jobs added in November!) together with the prospect of a tax cut for corporations and wealthy families means that the Fed will start to increase interest rates sooner and faster than it has indicated in its recent open market committee meetings. However, you don't know whether: 1) the bull market in equities since summer 2009 will continue to charge ahead because of increased household incomes and consumer confidence; or, 2) will experience a major downturn because of investors' fears that higher interest rates will discourage corporate spending on physical capital and will kill the real estate rally. You notice that neither call nor put option premiums on at the money strike prices on the S&P 500 index have changed noticeably from average levels for at the money premiums on the index over the last year.
a) Describe an options strategy that you might wish to apply that is consistent with your expectations.
b) What assumption are you making about the volatility of S&P 500 stock prices " implied" by the current level of option premiums on the index?
Illustrate what monthly profit would she realize with that level of business during the next 3 years.
The expansion will cost $60 million and will be financed with $40 million in new debt initially with a constant debt equity ratio maintained thereafter.
Suppose the own price elasticity of demand for good X is -3, its income elasticity is -3, its advertising elasticity is 4, and the cross-price elasticity of demand between it and good Y is 2. Determine how much the consumption of this good will chang..
Assume a two-country world with two factors of production (capital and labor) and two goods. In this context, state the Heckscher-Ohlin theorem. Then indicate the two definitions of relative factor abundance. In addition, spell out what is meant by t..
The new Star Wars movie "Make Room for Yoda" is opening at the local cineplex on Friday. The cineplex announces that no passes or discounts will be honored for "Make Room for Yoda". Cineplex management believes that demand for the new movie will
The Harrod-Domar model predicts that a country’s long-run per capita growth rate depends on its rate of savings, whereas the Solow model predicts that it does not. According to both the Harrod-Domar and Solow models, if total factor productivity (i.e..
Why do national income accountants compare market value of total outputs in various years rather than actual physical volumes of production.
Discuss whether the Good Guy / Bad Guy Routine is useful in negotiations; whether impasses are fatal to negotiations; and if arbitration is a sign that negotiations have failed.
Supply is the world supply. Elucidate the consumer surplus at the equilibrium price. What is the producer surplus.
The economic approach to value suggests that the overall value that is created through the production and sale of any good is roughly equal to the sum of the consumer surplus and the producer surplus associated with the good. In this context, with th..
Why is it important, for an open economy, that investment not be consistently higher than saving? If this occurs how does it relate to national consumption, balance of trade and saving?
You have maxed out your $10,000 credit card, which is being charged 12.8% interest compounded daily. What is the minimum monthly payment to continue to break even? How much should you pay each week to get out of debt within one year?
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