Blank tapes and prerecorded tapes are substitutes in production. An increase in the price of a blank

tape will cause

A) a decrease in the supply of prerecorded tapes.

B) an increase in the quantity supplied of prerecorded tapes but not in the supply.

C) a decrease in the quantity supplied of prerecorded tapes but not in the supply.

D) an increase in the supply of prerecorded tapes.

67)

68) Good A and good B are substitutes in production. The demand for good A decreases, which lowers

the price of good A. The decrease in the price of good A

A) increases the demand for good B. B) decreases the demand for good B.

C) increases the supply of good B. D) decreases the supply of good B.

3. An insurance company sells single premium deferred annuity contracts with return linked to a stock index, the time- value of one unit of which is denoted by S(). The contracts offer a minimum guarantee return rate of g%. At time 0, a single premium of amount it is paid by the policyholder, and x x y% is deducted by the insurance company. Thus, at the contract maturity date, 7, the insurance company will pay the policyholder x x (1 -yo) x Max [S(7)/S(0), (1 + g%)']. You are given the following information: (i) The contract will mature in one year. The minimum guarantee rate of return, g%, is 3%. (iii) Dividends are incorporated in the stock index. That is, the stock index is constructed with all stock dividends reinvested. (iv) S(0) = 100. (v) The price of a one-year European put option, with strike price of $103, on the stock index is $15.21. Determine 1%, so that the insurance company does not make or lose money on this contract.4. For a tWD-period binomial model, you are given: {i} Each period is one year. {ii} The current price for a nondividend-paying stock is El]. {iii} 1: = 1.2340. where u is one plus the rate of capital gain on the stock per period if the stock price goes up. {iv} d = DEED}: where .u' is one plus the rate of capital loss on the stock per period if the stock price goes clown. {V} The continuously compounded risk-free interest rate is 5%. Calculate the price of an American call option on the stock with a strike price of 22. Consider a 9-month dollar-denominated American put option on British pounds. You are given that: (i) The current exchange rate is 1.43 US dollars per pound. (ii) The strike price of the put is 1.56 US dollars per pound. (iii) The volatility of the exchange rate is o = 0.3. (iv) The US dollar continuously compounded risk-free interest rate is 8%. (v) The British pound continuously compounded risk-free interest rate is 9%. Using a three-period binomial model, calculate the price of the put