QUESTIONS:
;Attend to all questions... All please.
Wildcat Drilling is an oil and gas exploration company that currently operating two active oil fields with a market value of $200 million dollars each. Unfortunately, Wildcat Drilling has $500 million in debt coming due at the end of the year.
A large oil company has offered Wildcat drilling a highly speculative, but potentially very valuable, oil and gas lease in exchange for one of their active oil fields. If Wildcat accepts the trade, there is a 10% chance that Wildcat will discover a major new oil field that would be worth $1.2 billion, a 15% that Wildcat will discover a productive oil field that would be worth $600 million, and a 75% chance that Wildcat will not discover oil at all.
a) What is the overall expected payoff to Wildcat from the speculative oil lease deal?
b) What is the expected payoff to debt holders with the speculative oil lease deal?
c) What is the expected payoff to equity holders with the speculative oil lease deal? Will they vote for the deal?
36) A Japanese exporter has a (1,000,000 receivable due in one year. Detail a strategy using 36) B money market hedge that will eliminate any exchange rate risk. I-year rates of interest Borrowing Lending Dollar 4.5 % 4.00% Euro 6.00% 5.25% Yen 1.00% 0.75% Spot exchange rates I-year Forward Rates $ 1.25 = E 1.00 $ 1.2262 = 6 1.00 $ 1.00 = V 100 1.03 = V 100 A) Convert V1 17,924,528.30 to dollars at the spot rate; convert dollars to euro at the spot rate; lend 6943,396.22 at 5.25 percent. B) Borrow 6943,396.22 today. Convert the euro to dollars at the spot exchange rate, convert these dollars to yen at the spot rate, receive V117,924.528.30. C) Borrow 6970,873.79 today. Convert the euro to dollars at the spot exchange rate, receive $1, 165,048.54. Convert these dollars to yen at the spot rate, receive V. D) Lend (943,396.22 today. Convert the euro to dollars at the spot exchange rate, convert these dollars to yen at the spot rate. 37) A Japanese importer has a 61,000,000 payable due in one year. 37) C Spot exchange rates I-year Forward Rates Contract size $ 1.20 = 6 1.00 $ 1.25 = E 1.00 E 62,500 $ 1.00 = * 100 $ 1.00 = * 120 12,500,00 The one-year risk free rates are is = 4.03%; ig = 6.05%; and ry = 1%. Detail a strategy using forward contracts that will hedge his exchange rate risk. Have an estimate of how many contracts of what type. A) Go short in 16 yen forward contracts. Go long in 12 euro contracts. B) Go long in 12 yen forward contracts. Go short in 16 euro contracts. C) Go short in 12 yen forward contracts. Go long in 16 euro contracts. D) none of the optionsProblem 1: Exchange economy There two consumers, A and B, and two goods, X and Y. Consumer A has a preference relation over consumption bundles, which is represented by the following continuous and differentiable utility function: UA($A: ya) = 56.4 + 2x/1UA, where 31,4 2 0 is the quantity of good X and 3m 2 0 is the quantity of good Y. Consumer A has an initial endowment 52A 2: U of good X, but no initial endowment of good Y (Le, 37,, = 0). Consumer B has a preference relation over consumption bundles, which is represented by the following continuous and differentiable utility function: Ramsay's) = QWEB + ye, where 3:3 2 0 is the quantity of good X and ya 2 0 is the quantity of good Y. Consumer B has an initial endowment g > 0 of good Y, but no initial endowment of good X (i.e., 3 = 0). {1) Find the Pareto set for this economy, and illustrate the Pareto set and the initial endowments in an Edgeworth box diagram. Are the initial endowments Pareto optimal? {2) Normalize the price of good Y to 15* = 1. For all possible values of the parameters 33.4 > 0 and 373 > 0, nd the competitive equi- librium price of good X (i.e., px) and the competitive equilibrium allocations. PROBLEMS 11 Consider the National Football League data in Table B.1. a. Fit a multiple linear regression model relating the number of games won to the team's passing yardage (x2), the percentage of rushing plays (x7), and the opponents' yards rushing (x8). b. Construct the analysis-of-variance table and test for significance of regression. c. Calculate t statistics for testing the hypotheses Ho: B2 = 0, Ho: B, = 0, and Ho: B: = 0. What conclusions can you draw about the roles the variables X2, 17, and x8 play in the model? d. Calculate R? and RAdj for this model. e. Using the partial F test, determine the contribution of x7 to the model. How is this partial F statistic related to the t test for B, calculated in part c above? 3.2 Using the results of Problem 3.1, show numerically that the square of the simple correlation coefficient between the observed values y; and the fitted values y, equals R2. 13 Refer to Problem 3.1. a. Find a 95% CI on B. b. Find a 95% CI on the mean number of games won by a team when *2 = 2300, x7 = 56.0, and X8 = 2100.Three different drugs are being compared for their effectiveness in treating a certain illness. The mean number of days before the patient is discharged from hospital under each treatment is summarised below, together with the sample size and the sum of squares of the observations: Treatment Sample size Sample mean Sum of squares A 10 264 B 310 C 84 (i) For these three treatments, calculate estimates for the: (a) overall mean (b) common underlying variance. [4] (ii) Perform an analysis of variance to show that real differences exist among the three treatments at the 1% level. [3] (iii) Show that the mean number of days before discharge under treatment A is significantly better than under treatment B. [3] (iv) The cost per day for treatments A. B and C are 17.50, f5.85 and f14.95 respectively. Given that it can also be shown that there are significant differences between each pair of treatments, briefly advise the hospital on which treatment it should use. [2] [Total 12]
