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a) assuming a 10% risk-free rate and a USD 110.00 debt due in one year, use the bond-spread approach of the Merton model to fill in the spread (in basis points) associated with the indicated level of the SPY investment in the table below: SPY value (USD) Debt value(USD) Spread (basis points) 200 99.53 100 91.82 50 50.00 1 1.00
b) what option position reproduces the debt profile shown above?
c) restate your answer to b) in terms of the debt-holders, the equity holders and the equity as a call option on the assets of the firm: who has sold what to whom?
Use your own employment experiences and be sure to identify the sector in question, how would you relate the hiring practices of that industry or industries to fluctuations in the business cycle?
Provide reasons why monopolists do not exhibit resource allocative efficiency. Why monopolists cannot obtain any price they wish.
The demand schedule (or demand function or curve) for a good shows the total quantities (Q) that buyers are willing and able to buy at various prices (P) in some period of time. For example, here is a demand function illustrating the very special
Assume you are the plant manager for Bravo Pork Rinds, which produces pork products in a market that approximates perfect competition. Due to a slow economy, business has been slow and you are losing money every month. The owners have asked you wh..
In the class, we discussed the Paradox of Thrift argued by John Maynard Keynes. According to the argument, even if many household decide at the same time to increase their saving, the total saving will not increase in the long run, while it leads ..
A monopolist has determined that marginal revenue is $2.00 and average cost is $1.75. It has also determined that the lowest sustainable average cost is $1.75. To maximize profit, should the firm lower its price, increase its price, or leave the p..
Five years ago, to respond to cost-cutting pressure during a weak economy, your company decided to close five sales offices employing five people each. Currently your company employs independent sales agents who earn a 2.5% commission on all sales..
Suppose that long term interest rates in the economy were increasing due to strong economic growth and demand for loans in the world economy. Meanwhile suppose that the Fed was holding down its federal funds rate target. What would probably be hap..
Illustrate what conditions is it possible to increase production of one good without decreasing production of another
Given an MPC of .8, if the C+I equilibrium level of aggregate expenditure is $600 billion, then government expending of $50 billion is included, Determine new equilibrium level of aggregate expenditure?
Bridget has a limited income and consumes only wine and cheese; her current consumption choice is four bottles of wine and 10 pounds of cheese.
What is the maximum per unit that sellers are willing to pay intermediaries if hiring them saves $8 transaction costs?
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