...Consider a forward start option which, 1 year from today, will give its owner a 1-year European call option with a strike price equal to the stock price at that time. You are given: (i) The European call option is on a stock that pays no dividends. (ii) The stock's volatility is 30%. (iii) The forward price for delivery of 1 share of the stock 1 year from today is 100. (iv) The continuously compounded risk-free interest rate is 8%. Under the Black-Scholes framework, determine the price today of the forward start option.

10. RedCap Manufacturing, Inc. is planning to borrow money by taking out a short term loan (i.e., increase notes payable) and depositing this money directly into the firm's checking account (i.c., increase cash). RedCap believes that this event will have no affect on either sales or costs, and therefore no affect on net income. All else constant, this new policy should cause the firm's quick ratio (assuming an initial quick ratio of 1.5) to: a. Increase b. Decrease c. No Change d. Not enough information is provided to answer this question. 11. BlueHat, Inc. is planning to use excess cash that the company has in its checking account (i.e., reduce cash) to pay off a long term loan balance. (i.e., decrease long-term debt). BlueHat believes that this event will have no affect on either sales or costs, and therefore no affect on net income. All else constant, this new policy should cause the firm's debt ratio (assuming an initial debt ratio of 45%) to: a. Increase b. Decrease c. No Change

The current price of a non-dividend paying stock is 40 and the continuously compounded risk-free interest rate is 8%. You enter into a short position on 3 call options, each with 3 months to maturity, a strike price of 35, and an option premium of 6.13. Simultaneously, you enter into a long position on 5 call options, each with 3 months to maturity, a strike price of 40, and an option premium of 2.78. All 8 options are held until maturity. Calculate the maximum possible profit and the maximum possible loss for the entire option portfolio.

You have been employed to consult a well-known sports person who wants to set up a business to commercialese their brand and develop some sports products. They have been playing sports straight from school and have very little understanding of running a business and developing products. They need your help in launching their business and more specifically, they have several questions that are important to understand before going forward: a) If you are appointed as a financial manager of this new company, what will be your main role and activities?

b) Will the company need to invest money in order to acquire assets and if so, in what type of assets is it likely to need? (6 marks) c) Will this company need to raise financing? Is it wise to list the company on the stock market and/or issue bonds? What do you recommend as a financing strategy? (7 marks) d) The sports person believes that any company should be socially responsible and wishes to donate 10% of all profits to charities. Is it a good idea for a company to be bound by such a rule? If not, are there other options to be socially responsible?

List the 4 methods that may be used for the hedging of financial risks? (4 marks) Question 3 (16 marks) a. A large investor wants your firm to help him sell a large block of 25,000 shares of a stock. The current market price of the stock is RM40.00 per share. When this block of stock hits the market, it should depress prices from their current level. Consequently, this investor is willing to sell to your firm at a price of RM35.00 per share. i. If transaction costs are RM1.00 per share and the market price does not move, what profit will your firm make with this deal? (5 marks) ii. If the market price drops to RM34.00 per share, what profit will your firm make? (5 marks) iii. What is the largest price drop that will still enable your firm to make a profit? (4 marks) b. The Internet has made all types of information more available and at lower cost. Why would you expect this to increase capital market efficiency? (2 marks)

Consider a forward start option which, 1 year from today, will give its owner a 1-year European call option with a strike price equal to the stock price at that time. You are given: (i) The European call option is on a stock that pays no dividends. (ii) The stock's volatility is 30%. (iii) The forward price for delivery of 1 share of the stock 1 year from today is 100. (iv) The continuously compounded risk-free interest rate is 8%. Under the Black-Scholes framework, determine the price today of the forward start option.

no half work

You've decided to buy a house that is valued at $1 million. You have $300,000 to use as a down payment on the house, and want to take out a mortgage for the remainder of the purchase price. Your bank has approved your $700,000 mortgage, and is offering a standard 30-year mortgage at a 12% fixed nominal interest rate (called the loan's annual percentage rate or APR). Under this loan proposal, your mortgage payment will be month. (Note: Round the final value of any interest rate used to four decimal places.) per Your friends suggest that you take a 15-year mortgage, because a 30-year mortgage is too long and you will pay a lot of money on interest. If your bank approves a 15-year, $700,000 loan at a fixed nominal interest rate of 12% (APR), then the difference in the monthly payment of the 15-year mortgage and 30-year mortgage will be ? (Note: Round the final value of any interest rate used to four decimal places.) It is likely that you won't like the prospect of paying more money each month, but if you do take out a 15-year mortgage, you will make far fewer payments and will pay a lot less in interest. How much more total interest will you pay over the life of the loan if you take out a 30-year mortgage instead of a 15-year mortgage? $1,490,250.96 $1,079,892.00 $1,382,261.76 $1,274,272.56 Which of the following statements is not true about mortgages? Mortgages always have a fixed nominal interest rate. The payment allocated toward principal in an amortized loan is the residual balance-that is, the difference between total payment and the interest due. The ending balance of an amortized loan contract will be zero. Mortgages are examples of amortized loans.

I own 8 percent of the Standlee Corporation's 30,000 shares of common stock, which most recently traded for a price of $98 per share. The company has since declared its plans to en gage in a two-for-one stock split.

a. What will my financial position be after the stock split, compared to my current position? (Hint: Assume the stock price falls proportionately.)

b. The executive vice-president in charge of finance believes the price will not fall in propor tion to the size of the split and will only fall 45 percent because she thinks the pre-split price is above the optimal price range. If she is correct, what will be my net gain from the split?

Question 2: You are on the board of directors of the B. Phillips Corporation, and Phillips has an nounced its plan to pay dividends of $550,000. Presently there are 275,000 shares outstanding, and the earnings per share is $6. It looks to you like the stock should sell for $45 after the ex-dividend date. If instead of paying a dividend, the management decides to repurchase stock

a. What should be the repurchase price that is equivalent to the proposed dividend? (Hint: Ignore any tax effects.)

b. How many shares should the company repurchase?

c. You want to look out for the small shareholders. If someone owns 100 shares, do you think he would prefer that the company pay the dividend or repurchase stock?

Which of the following actions would decrease the current ratio (assuming an initial current ratio of 0.8, and current liabilities equal to $1,000,000)? a. Borrow $100,000 in short term debt and deposit this money (i.e., $100,000) into the firm's cash account. b. Borrow $200,000 in long-term debt to buy $200,000 worth of additional inventory. c. Borrow $50,000 of short-term debt and use the proceeds to pay all operating expenses sooner, thus lowering accruals (i.c., accrued expenses) by $50,000. d. Sell $250,000 of fixed assets to pay off an equal amount of long-term debt. e. None of the above-that is, none of the actions listed about will decrease the current ratio. 10. RedCap Manufacturing, Inc. is planning to borrow money by taking out a short term loan (i.e., increase notes payable) and depositing this money directly into the firm's checking account (i.c., increase cash). RedCap believes that this event will have no affect on either sales or costs, and therefore no affect on net income. All else constant, this new policy should cause the firm's quick ratio (assuming an initial quick ratio of 1.5) to: a. Increase b. Decrease c. No Change d. Not enough information is provided to answer this question. 11. BlueHat, Inc. is planning to use excess cash that the company has in its checking account (i.e., reduce cash) to pay off a long term loan balance. (i.e., decrease long-term debt). BlueHat believes that this event will have no affect on either sales or costs, and therefore no affect on net income. All else constant, this new policy should cause the firm's debt ratio (assuming an initial debt ratio of 45%) to: a. Increase b. Decrease c. No Change d. Not enough information is provided to answer this question. 12. GreenChapeau, Inc. is planning to increase its short-term loans (i.e., increase notes payable) to pay for an increase in the firm's basic inventory level (i.e., increase inventory). GreenChapeau believes that this event will have no affect on either sales or costs, and therefore no affect on net income. All else constant, this new policy should cause the firm's current ratio (assuming a current ratio of 1.5) to: a. Increase b. Decrease c. No Change d. Not enough information is provided to answer this question.

Cactus Corporation manufactures and sells several different lines of women clothes. Its internal audit department completed an audit of its internal control process. The auditors noted the following items: a. A cashier cashed a check from a customer in payment of an account receivable, pocketed the cash, and concealed the theft by properly posting the receipt to the customer's account in the accounts receivable ledger. b. Several customers returned clothing purchases. Instead of putting the clothes into a return bin to be put back on the rack, a clerk put the clothing in a separate bin under some cleaning rags. After her shift, she transferred the clothes to a gym bag and took them home. c. A receiving clerk noticed that four batches of pants were included in a shipment when only three were ordered. The clerk put the extra batch aside and took it home after his shift ended. Required: a. Explain how the principle of separation of duties is violated in each of the following situations. (6 points: 2 points for each item) b. Suggest one solution to solve the problem and exposure highlighted on question (a) for each item

48. Which of the following is a characteristic of the data collection step in marketing research: A. The least expensive step in marketing research B. The least tedious step in marketing research C. The step in which the most mistakes are made D. The step that is most interesting to researchers 49. Which of the following is an example of a durable good: A. House B. Haircut C. Gasoline D. Hamburger 50. Motives, perception, attitude, lifestyle, personality, and abilities are factors influencing consumer behavior. A. political B. social C. psychological D. economic 51. Business goals are accomplished by means of marketing A. salespeople. B. budgets. C. profit. D. strategies. 52. Products that appeal to the majority of customers are often sold through marketing efforts. A. segmented B. mass C. demographic D. psychographic

58. Which of the following is most likely to be a dynamic element of a business's external environment: A. Decrease in personnel B. Increase in competition C. Renewed emphasis on training D. New quality control measures 59. James needs to hire a bookkeeper for his growing business. To determine the new employee's salary, James obtained pay data from five companies in his industry that are similar in size. The research indicated the following: Company A pays $31,205; Company B pays $29,995; Company C pays $34,800; Company D pays $42,500; and Company E pays $36,500. James decided to set his bookkeeper's salary at $35,000. What measure of central tendency did James use to set his new employee's salary? A. Mode B. Mean C. Range D. Median 60. Hill Industries uses specific criteria to evaluate vendor performance, including on-time delivery rate, return rate, and number of customer complaints. These metrics are also known as A. consensus scales. B. performance indicators. C. economic indicators. D. return on capital. 61. A business converts inputs into outputs through its activities. A. accounting B. management C. marketing D. production

10 Breech identifies four main elements of management. They are planning, control, coordination and: a. The division of work. b. Centralization. c. Discipline. d. Motivation. 11 Many well-known business economists participate in public debates. (a)True (b) False 12 Marginal Utility is the utility derived from the additional unit of a commodity consumed. (a)True (b) False 13 Compared to the static model, the fishing effort in a dynamic model is likely to be a. Larger. b. Smaller. c. Similar. d. Larger or smaller. 14 Land, labor, and money are the three categories of economic resources. (a)True (b) False 15 Which of the following is not an interest rate derivative used for interest rate management? Interest rate guarantee a. Floor b. Swap c. Cap d. All of the above are interest rate derivatives 16 An agreement which guarantees an investor a minimum return on a principal amount is called a: a. Cap b. Executive stock option c. Stock option d. Floor

18 The overall process of decision making in, for example, staff selection includes which of these stages? a. Deciding which candidate to appoint b. Identifying the need for a new member of staff c. Agreeing the job specification d. All of the above 19 A manager who is helping a customer return some shoes they purchased last week is dealing with what type of decision? a. Uncertainty b. Non-programmed decision c. Bounded rationality d. Programmed decision 20 Decision making situations can be categorized along a scale which ranges from: a. Uncertainty to certainty to risk b. Certainty to uncertainty to risk c. Certainty to risk to uncertainty d. Certainty to risk to uncertainty to ambiguity

3 When the decrease in the price of one good causes the demand for another good to decrease, the goods are: a. Normal b. Inferior c. Substitutes d. Complements 4 Suppose the demand for good Z goes up when the price of good Y goes down. We can say that goods Z and Y are: a. Substitutes. b. Complements. c. Unrelated goods. d. Perfect substitutes. 5 If the demand for coffee decreases as income decreases, coffee is: a. An inferior good. b. A normal good. c. A complementary good. d. A substitute good. 6 Which of the following will NOT cause a shift in the demand curve for compact discs? a. A change in the price of pre-recorded cassette tapes. b. A change in income. c. A change in the price of compact discs. d. A change in wealth. 7 When excess demand occurs in an unregulated market, there is a tendency for: a. Quantity supplied to decrease. b. Quantity demanded to increase. c. Price to rise. d. Price to fall. 8 Market equilibrium exists when _____________ at the prevailing price. a. quantity demanded is less than quantity supplied b. quantity supplied is greater than quantity demanded c. quantity demanded equals quantity supplied d. quantity demanded is greater than quantity supplied 9 A movement along the demand curve to the left may be caused by: a. A decrease in supply. b. A rise in the price of inputs. c. A fall in the number of substitute goods. d. A rise in income.

Import Tariffs and Quotas In the 1980's the Australian government imposed quotas on the importation of cars without imposing restrictions on the construction of foreign-owned car factories in Australia. This question is intended for you to analyze a potential rationale for these policies. The demand for cars in Australia bas the following form: QD(P) - P (1) where Qp(P) is in millions of cars and P is in units of $10,000. The domestic supply of cars in Australia takes the following form: Qs(P) = P (2) (a) What is the price elasticity of demand of this function when P=2?! What is the price elasticity when P=3? (Hint:-) [1 mark] (b) As you can see by your answers in (a), the demand function is unique because it has the same elasticity along the entire demand curve. We call demand functions with this property "isoclastic." Use the formula for elasticity to show that the clasticity is always equal to your answer in part 1 regardless of the P chosen. [1 mark] (e) Suppose the economy is closed to imports. What is the price of cars in a closed economy? What is the quantity of cars sold at this price? In a demand/supply graph indicate the equilibrium price and quantity and show the area representing consumer surplus and the area representing producer surplus.[1 mark (d) Now suppose that the international price of cars is P = 2 and that there is an infinite supply of cars at this price. If there were no restrictions, how many cars would be imported? How many would be produced domestically? How many would be consamed?

Kelly is a clerk and she earns $80,000 per annum. She thinks that her salary is too low. So she starts her own cake shop by using her savings of $100,000, which earns interest at 5 percent per annum. After one year, she earns an accounting profit of $80,000. What is Kelly's economic profit? Show your calculation. (8 marks) Question 5 Suppose Sophia sells flowers in a perfectly competitive market and always maximizes profit. (a) Given the current market price is $5, Sophia sells 2000 flowers every week and makes zero profit. What are the amounts of marginal revenue, marginal cost and average total cost at this level of output? Briefly explain.

Discuss the concept of portfolio theory and CAPM model

5. Under the method, the underwriter buys the securities for less than the offering price and accepts the risk of not selling the issue, while under the method, the underwriter does not purchase the shares but merely acts as an agent. A. best efforts; firm commitment B. firm commitment; best efforts C. general cash offer; best efforts D. competitive offer; negotiated offer E. seasoned; unseasoned 6. Empirical evidence suggests that upon announcement of a new equity issue, current stock prices generally: A. drop, perhaps because the new issue reflects management's view that common stock is currently overvalued. B. remain about the same since an efficient market anticipates a new equity issue. C. increase, perhaps because the issues are associated with positive NPV projects. D. increase, because the market supply is always less than demand. E. increase, because underwriters exercise their green shoe option. 7. Empirical evidence suggests that new equity issues are generally: A. priced efficiently by the market. B. overpriced by investor excitement concerning a new issue. C. overpriced resulting from SEC regulation. D. underpriced, in part, to facilitate the issue. E. underpriced resulting from SEC regulation.