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___7) Suppose you are considering purchasing a vehicle and the price of a Toyota Camry is $20,000 and the cost of a new Honda motorcycle is $10,000. Meaning that for every Toyota Camry you purchase you are giving up two Honda motorcycles. Using only the information given, which of the following statements is true?

a) The relationship between motorcycles and Camry’s is positive.

b) The equation that maps this relationship is y = 1 + 2x, where y is motorcycles and x is Camry’s.

c) The relationship between Honda motorcycles and Camry’s is negative.

d) The equation that maps this relationship is y = 1 - 2x, where y is motorcycles and x is Camry’s.

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A project has an initial requirement of $698,700 for fixed assets and $61,000 for net working capital. The fixed assets will be depreciated to a zero book value over the 4-year life of the project and will be worthless at the end of the project. All of the net working capital will be recouped after 4 years. The expected annual operating cash flow is $218,000. What is the project's internal rate of return if the tax rate is 35 percent?

Answer 7.72 percent

8.41 percent

8.69 percent

9.11 percent

9.97 percent

.

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1.Explain the reasons why the muliplier could decrease in value

2.Briefly explain the difference between savings and dissavings

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The Rosemont Company is a member of a perfectly competitive industry. Like all members of the industry, its total cost function is:

TCQQ=++16000010042,

where, TC is the firm’s monthly total cost in dollars and Q is the firm’s monthly output.

a) If the industry is in long-run equilibrium, what is the price of the Rosemont Company’s product?

b) What is the firm’s monthly output?

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The XYZ Company has just gathered estimates for making a business analysis of a new product. Variable costs are constant at $5 a unit; additional plants will be obtained at a cost of $28,000 and depreciated over four years; the new product will be charged $14,000 a year for its share of general overhead; the marketing program calls for an annual advertising expenditure of $15,000 on advertising, $20,000 on distribution, and a price of $9. The firm will have to be able to sell how many units to break even.

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what is planning ?

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Determine the size of the M1 money supply using the following information.

Currency 700 billion

money market mutual funds 2,000 billion

demand deposits 300 billion

other checkable deposits 300 billion

traveler's check 10 billion

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4. Answer the following questions based on the following quotation, which is October 1 price quotation on light sweet crude oil (source: New York Mercantile Exchange). (Each part is worth 5 points, 25 points total)

Last Open High Open Low High Low Most Recent Change

Nov 2007 80.25 81.55 81.45 82.02 79.45 80.24s 0.01

Dec 2007 79.28 80.35 80.3 80.8 78.5 79.28s 0.00

Jan 2008 78.44 n/a 79.58 79.9 77.75 78.50s -0.06

Feb 2008 77.68 n/a 78.85 78.86 77.22 77.87s -0.19

Mar 2008 77.32 n/a 78.25 78.62 76.75 77.34s -0.02

April 2008 76.83 n/a 77.61 77.61 76.28 76.86s -0.03

(a) Here the futures price is lower the greater the time to expiration; what does this imply about the convenience yield of oil? Specifically, is it greater than the cost of carrying oil? (Hint: carry cost model).

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Assume that the following interest rates at which firms A and B can borrow:

Fixed rate Floating rate

Firm A 8% LIBOR + 1%

Firm B 9% LIBOR + 1.4%

Premium paid by B over A 1% 0.4%

Also assume that A ultimately wants a floating rate loan while B wants a fixed rate loan. Design an interest rate swap so that both can benefit, assuming that no swap bank is involved

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Answer the following questions based on the following quotation. On October 1, 2007, S&P 500 closed at 1547 where the quotation of CALL options on S&P 500 was as follows. Those contracts expire in October 2007

Strike Price Open High Low Last sett

1540 -- -- -- -- 31.70

1600 1.70 3.60 1.70 3.00 3.35

(a) Which option is in the money?

(b) Decompose the value of 1540 call, $31.7, into intrinsic value and time value.

(c) Again using the call with exercise price of 1540, what would be your cash proceeds if you exercise the option on October 1 (index options are settled by cash)? Assume that both dividends and transaction costs are small enough to be ignored. Based on this answer and answer on (b), does it make sense to exercise an American call before expiration?

(d) Assume that put-call parity holds for these options. What should be the value of a PUT on S&P 500 with exercise price of 1600? Assume that the annual risk-free rate is 5%

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