answer all

Makeover Inc. believes that at its current stock price of $16.00 the firm is undervalued in the market. Makeover plans to repurchase 2.4 million of its 20 million shares outstanding. The firm's managers expect that they can repurchase the entire 2.4 million shares at the expected equilibrium price after repurchase. The firm's current earnings are $44 million. If management's assumptions hold, what is the expected per-share market price after repurchase?

XP Cooperates a processing operation involving two stages, the output of process 1 being passed to process 2. The process costs for period 3 were as follows.

Process 1 Material 3,000 kg at $0.25 per kg Labor $120

Process 2 Material 2,000 kg at $0.40 per kg Labor $84

General overhead for period 3 amounted to $357 and is absorbed into process costs at a rate of 375% of direct labor costs in process 1 and 496% of direct labor costs in process 2.

The normal output of process 1 is 80% of input and of process 2, 90% of input. Waste matter from process 1 is sold for $0.20 per kg and that from process 2 for $0.30 per kg.

The output for period 3 was as follows.

Process 1 2,300 kgs Process 2 4,000 kgs

There was no inventory of work in progress at either the beginning or the end of the period and it may be assumed that all available waste matter had been sold at the prices indicated.

Required: Show how the foregoing data would be recorded in process, scrap and abnormal loss/gain accounts.

a client with diabetes mellitus has an ulceration on the bottom of the foot. to assess for associated cellulitis which action should the nurse take.

a. Assess the color of the wound drainage

b. compare pedal pulse volume bilaterally

c. observe the skin surrounding the ulcerat2ion

d. note client response during plantar flexion

2. the nurse enters the room of a client who has a history of emphysema and reports progressive shortness of breath, wheezing with exercise and feeling tired with any activity. the client is tachycardic, and has cyanotic nail beds. which action should the nurse implement?

a. Administer a prn dose bronchodilator

b. encourage slow deep breathing

c. give scheduled corticosteroid dose

d. facilitate rest in a quiet environment

3. a client arrives at the clinic after joggingand reports experiencing continued shortness of breath. the client denies sore throat, is afrebile but reports tightness in the chest and a dry cough which assessment should the nurse implement first?

a. determine if the client has a recent chest x-ray or arterial blood gases.

b. review the clients current daily medications for allergies.

c. auscultate lungs for wheezes and ither adventitious sounds.

d. evaluate previous history of pneumonia or other pulmonary conditions.

4. During a home visit the nurse should evaluate the effectiveness of a clients treatment for chronic obstructive pulmonary disease by assessing for which primary symptom?

a. dyspnea

b. unilateral diminished breath sounds.

c. tachycardia

d. edema of the ankles

5. a client who is being treated for chronic back pain with methadone is admitted to the surgical unit following urological surgery. which modifications in the plan of care should the nurse make for this clients pain management during the postoperative period?

a. use minimal parenteral opioods for surgical pain, in addition to oral methadone.

b. consult with surgeon about increasing methadone in lieu of parenteral opioids

c. maintain clients methadone and medicate surgical pain based on pain rating

d. make no changes in standard pain management for this surgery and hold methadone.

) Give two reasons why the Canadian dollars appreciate with respect to the US dollars since 2002. Provide analysis using the LR model of a small open economy to support your reasons.

2. (10 points) A student argues: "Unlike in a closed economy, an increase in military spending by the government does not crowd out investment in a small open economy in the long run. Without reduction in investment spending, future growth will not be affected and hence future consumption will not be affected. Thus, with an increase in military spending, there is no intertemporal tradeoff for such a small open economy." True or false? Discuss.

Part III (Problem-solving Question) - points

1. (16 points) Consider the Solow model. Assume the production function of the economy is Y = K (EL)" for all economies. Country I and Country both have the same s=25%, g-2%, 8-7%. But Country I has n=1%, while Country 2 has n=3.5%.

a. Find the steady state values of k and y for both countries numerically. b. Suppose both countries currently have the same k-4.

i. Solve numerically for the current values of 7 and 7 for both countries.

ii. Draw the rate of capital inflow (s) and rate of capital outflow (n+g+8) vs.

k for both countries on the same graph. Indicate the steady states of both countries and the current position of both countries. Indicate the current values of 7, for both countries on the same graph.

2. (20 points) Consider a small open economy. Suppose this economy increases its government purchases.

a. Consider the long-run implication of such fiscal policy action.

i. Use the loanable funds market of the small open economy to illustrate how net capital outflow will be affected. ii. Use the exchange rate market diagram to illustrate how the value of the

its

domestic currency and net exports will be affected. b. Consider, instead, the short-run implication of such fiscal policy action. Assume

such an economy is operating under a fixed exchange rate regime. Illustrate using the Mundell-Fleming IS-LM model (in the e-Y space) to determine what will happen the value of domestic currency, net exports, and real output of the small open economy under consideration. Illustrate graphically how the short-run equilibrium is reached in the IS-LM model (in the r-Y space) of the small open economy under consideration as well.

Consider a version of the Solow growth model. The population of work ers today is given by N. All workers have one unit of time and do not value leisure, so total labor supply today is N. The stock of capital today is de noted by K. Output is produced by a single representative firm using capital and labor as inputs with production technology given by Y =zF(K, N) where F(K, N) = KaN-a 0

assume that the central banker will always act to maximize his own utility function, not society's. i.) Solve for the inflation rate and GDP when the central bank can and can not commit to monetary policy in terms of the parameters a, b, CCB, YT. ii.) Use your solution from i.) to compute the utility of society in the case where the central banker can commit to monetary policy. Find the value of CCB that maximizes society's welfare in this case. iii.) Use your solution from i.) to compute the utility of society in the case where the central banker cannot commit to monetary policy. Find the value of CCB that maximizes society's welfare in this case. How does this compare to your answer in part ii.) (i.e. is it larger or smaller, what is its relation to society's parameter c)? What does this tell you about how central bankers should be chosen if there is a commitment problem?

Let {} be a stochastic process in discrete time. Suppose = + , where = 1 + and and are white noise. a) Is {} a random walk? Why or why not? b) Is {} a random walk? Why or why not? c) Calculate the rational expectation of conditional on all relevant information up to and including period 1. d) What is the rational expectation of conditional on all relevant information up to and including period 1? e) Compare with the subjective expectation of based om the adaptive expectations formula with adjustment speed equal to one. VII.2 Consider an old-Keynesian model of a closed economy with constant wages and prices (behind the scene), abundant capacity, and output determined by demand: = = + + (1) = + 1 0 0 1 (2) = (1 ) + 1 + 0 0 1 (3) where the endogenous variables are = output (= income), = aggregate demand, = consumption, and 1 = expected output (income) in period as seen from period 1 while , which stands for government spending.

on goods and services, is considered exogenous as is , which is white noise. Finally, investment, , and the parameters and are given positive constants. Suppose expectations are "static" in the sense that expected income in period equals actual income in period 1. a) Solve for . b) Find the income multiplier (partial derivative of ) with respect to a change in 1 and respectively Suppose instead that expectations are rational. c) Explain what this means. d) Solve for e) Find the income multiplier with respect to a change in 1 and respectively. f) Compare the result under e) with that under b). Comment. g) Briefly, evaluate the model from a "modern" point of view

A market maker in stock index forward contracts observes a 6-month forward price of 112 on the index. The index spot price is 110 and the continuously compounded dividend yield on the index is 2%. The continuously compounded risk-free interest rate is 5%. Describe actions the market maker could take to exploit an arbitrage opportunity and calculate the resulting profit (per index unit). (A) Buy observed forward, sell synthetic forward, Profit = 0.34 (B) Buy observed forward, sell synthetic forward, Profit = 0.78 (C) Buy observed forward, sell synthetic forward, Profit = 1.35 (D) Sell observed forward, buy synthetic forward, Profit = 0.78 (E) Sell observed forward, buy synthetic forward, Profit = 0.34

You are to price options on a futures contract. The movements of the futures price are modeled by a binomial tree. You are given: (i) Each period is 6 months. (ii) u/d = 4/3, where u is one plus the rate of gain on the futures price if it goes up, and d is one plus the rate of loss if it goes down. (iii) The risk-neutral probability of an up move is 1/3. (iv) The initial futures price is 80. (v) The continuously compounded risk-free interest rate is 5%. Let CI be the price of a 1-year 85-strike European call option on the futures contract, and CII be the price of an otherwise identical American call option. Determine CII CI. (A) 0 (B) 0.022 (C) 0.044 (D) 0.066 (E) 0.088 47. Several months ago, an investor sold 100 units of a one-year European call option on a nondividend-paying stock. She immediately delta-hedged the commitment with shares of the stock, but has not ever re-balanced her portfolio. She now decides to close out all positions. You are given the following information: (i) The risk-free interest rate is constant. (ii) Several months ago Now Stock price $40.00 $50.00 Call option price $ 8.88 $14.42 Put option price $ 1.63 $ 0.26 Call option delta 0.794 The put option in the table above is a European option on the same stock and with the same strike price and expiration date as the call option. Calculate her profit

Suppose that the stock of money in a given economy is given by the sum of currency and demand for current accounts that do not pay any interest rate (so this represents the amount of money that people can hold in a given period). Suppose a change in government regulations that allows banks to start paying interest on current accounts.

a) How does this change in regulation affect the demand for money? b) What happens to the velocity of money? (Hint: Use the money demand derived from the quantity theory. Assume that the velocity is not constant but independent on the interest rate).

c) If the Central Bank keeps the money supply constant, what will happen to output and prices in the short run and in the long run? (Hint: Now use the aggrega demand derived from the quantity theory. Draw it in the same graph with a horizontal and a vertical aggregate supply).

d) Should the Central Bank keep the money supply constant in response to this regulatory change?

The owner of a national software company has been watching current economic information for the past two quarters and a rapid rise in demand for its software suites. Last month 30 new software engineers were hired to meet the demand. Even though these new hires will finish their project work in a few months, the owner plans to retain them in anticipation of future demand. Why is the owner making these type of decisions for the long-run? The owner is using adaptive expectation reasoning to hire more engineers and be ready for future demands of a long-term economic shift. The owner is using aggregate expectation reasoning to hire more engineers to quickly be ready for short-term future demands. The owner is using rational expectation reasoning to hire more engineers to quickly be ready now for future demands of a long-term economic shift.

Which level of output is the equilibrium level? Explain. b. Solve the model algebraically by using the equilibrium condition for income and expenditure. c. What is the economic intuition for the coefficient on Y in the consumption function? Now consider the following: For this year, firms plan to increase investment (for example, because the interest rate has fallen). The planned aggregate investment is then expected to be IP = 2000. d. Calculate the new equilibrium level of output. By how much has output increased in response to the increase in investment? What is the value of the multiplier? What does it depend on? e. Briefly explain why income rises by more than the increase in investment? Which variables are endogenous and which are exogenous in this model?

Suppose that the SOE is initially in steady state. Then, unexpectedly, a recession in the leading economies in the world comes about and gives rise to an offsetting monetary policy in these countries. As a crude representation of these events vis-a-vis our SOE we "translate" them into two unanticipated parameter shifts occurring at time 0 0: a shift in the demand shift parameter to 0 and a shift in the world interest rate to 0 , where 0 is close to zero. c) Suggest an interpretation of the fall in the demand shift parameter. d) Assume that after time 0 the public in the SOE rightly expects that the mentioned two new parameter values will remain in force for a long time and that no policy change in the SOE will occur. Under these circumstances illustrate how the SOE evolves for 0, using a phase diagram as well as a figure with time profiles of and presupposing that the sign of the steady-state effect on is dominated by the influence from the fall in the world interest rate. Explain the economic intuition. e) As an alternative scenario imagine that at time 1 0 the monetary and fiscal authorities in the SOE find the situation unsatisfactory and contemplate monetary and fiscal measures to stimulate economic activity. It is soon realized, however, that neither conventional monetary policy (upward shift in ) nor conventional fiscal policy (upward shift in ) will be very effective. Give plausible reasons for this unfavorable outlook. f) May a combination of conventional monetary and fiscal policy work? Why or why not? g) If international coordination of fiscal policy is possible, can this then improve the outlook? Why or why not?

Give two reasons why the Canadian dollars appreciate with respect to the US dollars since 2002. Provide analysis using the LR model of a small open economy to support your reasons.

2. (10 points) A student argues: "Unlike in a closed economy, an increase in military spending by the government does not crowd out investment in a small open economy in the long run. Without reduction in investment spending, future growth will not be affected and hence future consumption will not be affected. Thus, with an increase in military spending, there is no intertemporal tradeoff for such a small open economy." True or false? Discuss.

Part III (Problem-solving Question) - points

1. (16 points) Consider the Solow model. Assume the production function of the economy is Y = K (EL)" for all economies. Country I and Country both have the same s=25%, g-2%, 8-7%. But Country I has n=1%, while Country 2 has n=3.5%.

a. Find the steady state values of k and y for both countries numerically. b. Suppose both countries currently have the same k-4.

i. Solve numerically for the current values of 7 and 7 for both countries.

ii. Draw the rate of capital inflow (s) and rate of capital outflow (n+g+8) vs.

k for both countries on the same graph. Indicate the steady states of both countries and the current position of both countries. Indicate the current values of 7, for both countries on the same graph.

2. (20 points) Consider a small open economy. Suppose this economy increases its government purchases.

a. Consider the long-run implication of such fiscal policy action.

i. Use the loanable funds market of the small open economy to illustrate how net capital outflow will be affected. ii. Use the exchange rate market diagram to illustrate how the value of the

its

domestic currency and net exports will be affected. b. Consider, instead, the short-run implication of such fiscal policy action. Assume

such an economy is operating under a fixed exchange rate regime. Illustrate using the Mundell-Fleming IS-LM model (in the e-Y space) to determine what will happen the value of domestic currency, net exports, and real output of the small open economy under consideration. Illustrate graphically how the short-run equilibrium is reached in the IS-LM model (in the r-Y space) of the small open economy under consideration as well.

Define what is meant by a Beveridge curve. In the wake of the full-blown financial and economic crisis in late 2008 a large fall in employment occurred in many countries, not least in the U.S. Two different stories could in principle explain this sharp fall in employment. One is a "Schumpeterian story" emphasizing technological and structural change. The other is a "Keynesian story". b) During the recession a believer of the Schumpeterian story would expect "total separations", "quits", and "hiring" to rise, while a believer of the Keynesian story would expect "layoffs and discharges" to rise and "hiring" and "quits" to fall (the terms in quotation marks are the terms used by the Bureau of Labor Statistics in the U.S.). Briefly explain why the two types of believers would expect so. c) What does the data on labor market flows in the U.S. published by the Bureau of Labor Statistics tell us in relation to these two types of explanations?

You are considering the purchase of 100 units of a 3-month 25-strike European call option on a stock. You are given: (i) The Black-Scholes framework holds. (ii) The stock is currently selling for 20. (iii) The stock's volatility is 24%. (iv) The stock pays dividends continuously at a rate proportional to its price. The dividend yield is 3%. (v) The continuously compounded risk-free interest rate is 5%. Calculate the price of the block of 100 options. (A) 0.04 (B) 1.93 (C) 3.63 (D) 4.22 (E) 5.09 7. Company A is a U.S. international company, and Company B is a Japanese local company. Company A is negotiating with Company B to sell its operation in Tokyo to Company B. The deal will be settled in Japanese yen. To avoid a loss at the time when the deal is closed due to a sudden devaluation of yen relative to dollar, Company A has decided to buy at-the-money dollar-denominated yen put of the European type to hedge this risk. You are given the following information: (i) The deal will be closed 3 months from now. (ii) The sale price of the Tokyo operation has been settled at 120 billion Japanese yen. (iii) The continuously compounded risk-free interest rate in the U.S. is 3.5%. (iv) The continuously compounded risk-free interest rate in Japan is 1.5%. (v) The current exchange rate is 1 U.S. dollar = 120 Japanese yen. (vi) The daily volatility of the yen per dollar exchange rate is 0.261712%. (vii) 1 year = 365 days; 3 months = year. Calculate Company A's option cost.

Which of the following is/are true according to the Solow model? I. Countries that have higher technological growth rate, other things the same, have higher steady state real GDP per capita growth rate. II. Countries that have higher technological growth rate, other things the same, have lower current real GDP per capita growth rate. A. I only. B. II only. C. Both I and II. D. Neither I nor II. 2. Which of the following is/are true according to the Solow model? AKSTUDY I. Countries that have higher savings rate, other things the same, have higher steady state level of real GDP per capita. II. Countries that have higher savings rate, other things the same, have higher steady state level of consumption per capita. A. I only. B. II only. C. Both I and II. D. Neither I nor II. 3. Which of the following is/are true for a country that is in a steady state above the Golden Rule level of k according to the Solow model? I. Its savings rate is above its capital share of income. II. Its marginal product of capital is above its effective rate of depreciation (n+g+8). A. I only. B. II only. C. Both I and II. D. Neither I nor II. 4. Net capital outflow equals A. domestic private savings plus domestic public savings plus domestic investment B. domestic national savings minus domestic investment C. exports minus domestic investment D. net exports minus domestic investment.

Consider a small open economy with flexible exchange rate in the short run (assume goods prices are extremely sticky in the short run so that P and P* are exogenously fixed). Suppose domestic banks suffer losses due to excessively investing in the property market, which subsequently crashes. As a result, domestic banks are unable to lend out. Take this as a reduction in the money multiplier m, which leads to an exogenous decrease in the domestic money supply. a. Illustrate using the Mundell-Fleming IS-LM model (in the e-Y space) to determine what will happen the value of domestic currency, net exports, investment and real output of the small open economy under consideration. Illustrate graphically how the short-run equilibrium is reached in the IS-LM model (in the r-Y space) of the small open economy under consideration as well. b. Now, suppose the domestic monetary authority tries to counteract such a shock by expansionary monetary policy. Illustrate using the Mundell-Fleming IS-LM model (in the e-Y space) to determine what will happen the value of domestic currency, net exports, investment and real output of the small open economy under consideration. Could domestic monetary policy accommodate such a shock? Explain. c. Now, suppose instead the domestic government tries to counteract such a shock by a tax cut. Illustrate using the Mundell-Fleming IS-LM model (in the e-Y space) to determine what will happen the value of domestic currency, net exports, investment and real output of the small open economy under consideration. Could domestic fiscal policy accommodate such a shock? Explain.

The model as presented consists of only four equations, (1), (2), (3), and (4), while there are five endogenous variables. One may "close" the model by adding adaptive expectations or rational expectations or some other "reasonable" expectations formation hypothesis. We leave the model "open" in this regard. a) Consider the short run, that is, a fixed Taking expected and actual inflation as given, construct an IS-MP diagram in the ( ) plane. b) Indicate in the diagram whether and how the IS curve and the MP curve, respectively, shift if expected inflation shifts upward. Indicate also in the diagram whether and how the IS curve and the MP curve, respectively, shift if actual inflation shifts upward. Comment. c) Presupposing that the zero lower bound is not binding, show that the short-run equilibrium value of can be written as a linear (affine) function of the expected inflation rate. Draw the graph of this function, i.e., the "AD curve", in a diagram in the ( ) plane. d) Give a brief account of conclusions concerning the dynamics and dynamic responses to shocks implied by the model, if one assumes perfect foresight.

Periods of less than full employment correspond to: a. Points outside the production possibility curve. b. Points inside the production possibility curve. c. Points on the production possibility curve. d. Either points inside or outside the production possibility curve. 18 The circular flow of goods and incomes shows the relationship between: a. Income and money. b. Wages and salaries. c. Goods and services. d. Firms and households. 19 In a free market system, the amount of goods and services that any one household gets depends upon its: a. Income. b. Wage and interest income. c. Wealth. d. Income and wealth.

The current price of a non-dividend-paying stock is 100. The annual effective risk-free interest rate is 4%, and there are no transaction costs. The stock's two-year forward price is mispriced at 108, so to exploit this mispricing, an investor can short a share of the stock for 100 and simultaneously take a long position in a two-year forward contract. The investor can then invest the 100 at the risk-free rate, and finally buy back the share of stock at the forward price after two years. Determine which term best describes this strategy. (A) Hedging (B) Immunization (C) Arbitrage (D) Paylater (E) Diversification 74. Consider an airline company that faces risk concerning the price of jet fuel. Select the hedging strategy that best protects the company against an increase in the price of jet fuel. (A) Buying calls on jet fuel (B) Buying collars on jet fuel (C) Buying puts on jet fuel (D) Selling puts on jet fuel (E) Selling calls on jet fuel

Consider a closed economy described by the following equations

Y = 5000

G=1000

T = 1000 C=100+0.75(Y-T)

T = 1000-10r

where Y is total income (GDP), G is the government expenditure, T are the taxes, C is aggregate consumption that depends on disposable income (Y-T) and I is the investment function that we assume to be negatively related with the interest rate (r).

a) From this economy, calculate private, public and national saving;

b) Use the income expenditure identity to calculate the equilibrium

interest rate;

c) Now suppose that G increases to 1500, everything else constant. Calculate the

private, public and national saving in this case;