This is a question about finance. Please answer the questions in the attached file.

background, in which case: When the background is light, the logo should appear in the preferred full colour; however, there must be significant contrast between the background and both the blue and green of the logo. Using grey as an example, the background must be no darker than 15% black to use the full colour logo. COMM 371: Investment Theory FULL COLOUR ON WHITE FULL COLOUR ON LIGHT BACKGROUND (15% BLACK) When the background is black or dark, the logo reverses to white. Marked Assignment 1 REVERSE ON BLACK REVERSE ON SAUDER BLUE Dr. Markus Baldauf REVERSE ON SAUDER GREEN REVERSE ON PHOTOGRAPHIC Solutions must be typed. The work has to be done in groups of 3 to 5 students (include BACKGROUND the name of each group member, along with the university ID, at the top of the document). Every When only one colour is available for use, the entire logo appears in either white or 100% black. For dark backgrounds the white logo is used, and for light backgrounds the 100% black logo is used. group member has to be enrolled in one of my sections (104, 105, or 107). Submit one copy per group on Connect before 6:00PM Friday, September 30th. Late submissions will not be marked. 1-COLOUR GREYSCALE (100% BLACK) ON WHITE 1 1-COLOUR GREYSCALE (WHITE) ON BLACK 4 Credit Crunch [50 marks] Your friend Joey has a credit card and makes heavy use of it. He has no clue about its terms. So what, how bad can it be? Everybody's got one. Starting in January, Joey has put $1500 per month on the card. On July 15th he receives a letter from the credit card company alerting him of the fact that he hasn't paid off the card, and thatto everyone's surprisehe hasn't even made the required minimum payments. Upon receipt of that letter he stops using the credit card. Luckily, he hadn't used it in July. He knows that you're studying finance, so he asks for your help. Credit Card Terms APR compounding frequency minimum payment penalty if minimum is missed 19.99% daily 10.0% of the amount owed on the 1st of the month $50 per occurrence Make the following simplifying assumptions. Every month has 30 days and a year has 360 days. (a) [5 marks] Compute the effective daily and the effective annual rates. 1 background, in which case: When the background is light, the logo should appear in the preferred full colour; however, there must be significant contrast between the background and both the blue and green of the logo. Using grey as an example, the background must be no darker than 15% black to use the full colour logo. COMM 371: Investment Theory FULL COLOUR ON WHITE FULL COLOUR ON LIGHT BACKGROUND (15% BLACK) (b) [5 marks] What is the effective monthly rate? When the background is black or dark, the logo reverses to white. (c) [10 marks] How much money does Joey owe as of the end of July 15th? We will make a simplifying assumption. Regardless of when the credit card was used during the month, the payment is due on the first ofREVERSE the ON following SAUDER BLUE month. REVERSE ON BLACK (d) [5 marks] Let's work out a payment plan for Joey. How much does he have to pay by August 1st in order to avoid another penalty payment? REVERSE ON SAUDER GREEN REVERSE ON PHOTOGRAPHIC BACKGROUND (e) [10 marks] Eustace, one of Joey's friends offers to pay his debt for him. He will give him the When only one colour is available for use, the entire logo appears in either white or 100% black. For dark backgrounds the white logo is used, and for light backgrounds the 100% black logo is used. full amount owed for payment on August 1st. Eustace is a generous guy and only asks that Joey buys him one cappuccino per week until the rest of his life, starting next week. The price of a cappuccino is $5.0 and it is expected to grow at an effective annual rate of 1.5%. What is 1-COLOUR GREYSCALE (100% BLACK) ON WHITE 1-COLOUR GREYSCALE the effective annual interest rate that Eustace charges? Since Joey is in his early twenties and (WHITE) ON BLACK of excellent health, you may assume that he will live forever. 4 (f) [10 marks] Joey is outraged by Eustace's suggestion. Buying so many coffees seems outrageous. His friend Sally makes him another offer. In return for paying his debt in full on August 1st, all she asks is for him to fill up her car once per week for the next 2 years (starting the following week). One gas tank currently costs $100.0. What is the effective annual interest rate required for Sally to break even? Hint: This problem needs to be solved numerically. Use the annuity formula and try different values for the interest rate. If the present value of the annuity is larger than the debt, then try a higher interest rate. If the present value of the annuity is lower than the debt, then try a lower interest rate. (g) [5 marks] Whose offer should Joey accept? Explain your answer. 2 background, in which case: When the background is light, the logo should appear in the preferred full colour; however, there must be significant contrast between the background and both the blue and green of the logo. Using grey as an example, the background must be no darker than 15% black to use the full colour logo. COMM 371: Investment Theory FULL COLOUR ON WHITE 2 FULL COLOUR ON LIGHT BACKGROUND (15% BLACK) Discounting Pop Music [50 marks] When the background is black or dark, the logo reverses to white. Apple would like use one of Taylor Swift's songs to advertise its brand. In a study consultants have determined that the maximum price that Apple should pay for the rights to the song depends on howREVERSE oftenONin a given year the song is played BLACK REVERSE ON SAUDERon BLUEUBC's student radio station CiTR. The results are summarized in the table below. Scenario Song Count REVERSE ON PHOTOGRAPHIC A 0 - 50 per year BACKGROUND B 50 - 100 per year When only one colour is available for use, the entire logo appears in either white or 100% black. For dark backgrounds the white logo is used, and for lightC backgrounds the 100% black logo is used. 100+ per year REVERSE ON SAUDER GREEN Maximum Price $300000 per year $500000 per year $1000000 per year (a) [10 marks] What is the maximum Apple is willing to pay for a 5 year licensing deal? You may 1-COLOUR GREYSCALE (100% BLACK) ON WHITE 1-COLOUR GREYSCALE (WHITE) BLACK assume that the three scenarios areONequally likely, that Apple is risk neutral, and that it uses a discount rate of 6.0% per year. All cash flows in a given4 year occur on the last day of each year. (b) [10 marks] Alice, an Apple manager, wants more continuity in the ad campaign. She would like to buy the rights to the song forever. Under the assumptions of part (a), what is the maximum that Apple is willing to pay? (c) [10 marks] Ben, Alice's boss, disagrees with the assumption that the three scenarios A, B, and C are equally likely. Instead, he knows that B and C are equally likely and that A won't happen during the first 5 years. In subsequent years, the song will only be played at most 20 times per year. How does this change your answers to parts (a) and (b)? (d) [10 marks] The consultants made an error in their calculations. It turns out that the annual dollar amounts that they assigned to each scenario should increase by 1.5% per year. How does this change your answer to part (a)? (e) [10 marks] Another company is interested in using Taylor's song as well. The song is only valuable to Apple if an exclusivity deal can be negotiated. Apple immediately offers Taylor the 3 background, in which case: When the background is light, the logo should appear in the preferred full colour; however, there must be significant contrast between the background and both the blue and green of the logo. Using grey as an example, the background must be no darker than 15% black to use the full colour logo. COMM 371: Investment Theory FULL COLOUR ON WHITE FULL COLOUR ON LIGHT BACKGROUND (15% BLACK) maximum amount for a 5 year deal in cash upfront (i.e. your answer to the previous part). When the background is black or dark, the logo reverses to white. Taylor announces via her lawyer that since she is young she would prefer state-contingent payments (i.e. in every year, the value corresponding to scenario A, B, or C) to that single upfront payment. Based on that, what can you say about Taylor's attitude toward risk? Discuss REVERSE ON BLACK REVERSE ON SAUDER BLUE your answer. REVERSE ON SAUDER GREEN REVERSE ON PHOTOGRAPHIC BACKGROUND When only one colour is available for use, the entire logo appears in either white or 100% black. For dark backgrounds the white logo is used, and for light backgrounds the 100% black logo is used. 1-COLOUR GREYSCALE (100% BLACK) ON WHITE 1-COLOUR GREYSCALE (WHITE) ON BLACK 4 4