The information below is for questions [a] and [b]

2013 2016

Revenues 5,420,000 9,790,000

Operating Income 380,000 760,000

Depreciation 30,000 90,000

Interest expense 30,000 0

Pretax income 320,000 670,000

Income taxes 130,000 370,000

Net income after tax 190,000 300,000

Fixed assets 410,000 700,000

Total assets 2,450,000 2,910,000

Working capital 1,230,000 1,570,000

Total debt 160,000 0

Total shareholder's equity 1,590,000 2,200,000

[a] Calculate each of the DuPont formula components for 2013 and 2016, and calculate the return on equity (ROE) for 2013 and 2016! (2 points)

[b] Explain the impact of asset turnover changes and financial leverage on the change in ROE from 2013 to 2016! (2 points)

[c] Mrs. Goro, CFA, is a Japanese financial analyst living in Osaka. She documents that the spot price of a commodity is JPY 20,000, the futures price for the commodity expiring in one year is JPY 21,000 and the interest rate for one year is 3 percent. Explain whether there is an arbitrage opportunity or not! Calculate the arbitrage profit (if any)! (2 points)

[d] There are two hedge fund managers in Tokyo: Kazuhiro-san, CFA, and Mrs. Megumi, CFA. Both managers develop a derivative strategy to obtain profit in the derivative markets. Kazuhiro-san has just purchased a stock-index fund, currently selling at JPY 1,800 per share. He also purchases an at-the-money European put option on the fund for JPY 90, with exercise price JPY 1,800, and three-month time to expiration. Mrs. Megumi purchased a stock-index fund in addition to three-month puts with strike prices of JPY 1,750 cost JPY. Explain which strategy entails greater systematic risk! (2 points)

[e] Mrs. Nagamine, CFA, is a financial analyst living in Tokyo. She specializes in analyzing the derivative contract. She observes two Japanese firms: Kutsu Inc. and Ushi Inc. Kutsu Inc. has a substantially higher beta than Ushi Inc. The remaining parameters are close to equal between those two firms. Explain whether a put option of Kutsu Inc. or Ushi Inc. contract is worth more! (2 points)