Trump Ltd. decided to increase its bill payment time from 20 days to 40 days. It was said that they wanted to exercise some cost control and optimize cash flow.

i) What impact will this have on Trump's operating and cash cycles?

ii) How will Trump's suppliers be affected? 

iii) Is what Trump did ethical to do, especially with short suppliers?

iv) Is there any cash benefit to Trump from the decision?

(1+1+2+1) = 5 marks

 

In recent times, we have observed a hike in world oil prices, followed by a decline. As an oil producer, you will be worried when you now see a slump in oil prices because your revenues may be hit badly. What would you, as a firm in such a situation? Explain why you may not be able to create perfect hedge against this situation? (5 marks) 

 

A call option matures in 3 months. The underlying stock price is $60 and the standard deviation of stock's return is 10% per year. The risk-free rate is 4% per annum. The exercise price is zero. What is the price of the call option?