We need to understand the concept of European put option and its calculation. A European put option is a financial instrument that gives the buyer the right, but not the obligation, to sell an underlying asset at a specified price (known as the strike price) on or before the expiration date of the option.
In this case, the striking price of the six-month European put option is $1.05/CAD, which means the buyer has the right to sell CAD at $1.05 per CAD. The option premium is $0.03/CAD, which is the amount paid by the buyer to the seller for the option.
Now, let's assume that at the due date, the value of the Canadian dollar has risen to $1.10. In this scenario, the buyer of the option will exercise the option, as it is more profitable for them to sell CAD at $1.05 rather than the current market price of $1.10.
Therefore, the option is in-the-money, which means the buyer can make a profit by exercising the option. The net profit/loss of the buyer of the option can be calculated as follows:
Profit/Loss = (Strike price - Market price) - Option premium
= ($1.05 - $1.10) - $0.03
= $0.02
The buyer of the option will make a net profit of $0.02/CAD.
In summary, the option is in-the-money, and the buyer can exercise the option to sell CAD at $1.05 per CAD, making a net profit of $0.02/CAD after deducting the option premium.
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Under the Bretton Woods system of 1944-1973, member countries could re-peg their currencies up to _____, without permission of the International Monetary Fund.
Under the Bretton Woods system of 1944-1973, member countries were allowed to re-peg their currencies up to 10% without the permission of the International Monetary Fund (IMF).
The Bretton Woods system was established in 1944 to provide a stable international monetary system after World War II. Under this system, the US dollar was pegged to gold at a fixed rate, and other currencies were pegged to the US dollar.
The 10% limit on currency re-pegging was intended to prevent excessive currency fluctuations that could disrupt international trade and capital flows. However, some countries violated this rule and devalued their currencies beyond the permitted limit in response to economic pressures such as inflation, balance of payments deficits, or changes in the international economic environment.
The breakdown of the Bretton Woods system in 1973 was largely due to the US's inability to maintain the value of the dollar in the face of increasing inflation and balance of payments deficits. This led to the abandonment of the fixed exchange rate system and the adoption of floating exchange rates.
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in a ____ organization employees practice knowledge management by continually acquiring and sharing new knowledge and are willing to apply that knowledge in making decisions or performing their work
In a learning organization, employees practice knowledge management by continually acquiring and sharing new knowledge and are willing to apply that knowledge in making decisions or performing their work.
A learning organization is a type of organization that values continuous learning and improvement. It emphasizes the importance of personal and professional growth for employees and encourages them to share their knowledge and expertise with one another.
In a learning organization, knowledge management is a key part of the culture. Employees are encouraged to share their knowledge and learn from one another, and the organization provides resources and support to facilitate this process. As a result, the organization is able to adapt to changes in the marketplace and stay ahead of its competitors.
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The records of Gemology Inc., included the following information: Net fixed assets, January 1 $ 125,000 Net fixed assets, December 31 75,000 Net sales 850,000 Gross margin 300,000 Net income 100,000 What is the fixed asset turnover ratio
The fixed asset turnover ratio for Gemology Inc. is 8.5.
How to calculate the fixed asset turnover ratioThe fixed asset turnover ratio is a financial ratio that measures how effectively a company is using its fixed assets to generate revenue.
Average net fixed assets = (Beginning net fixed assets + Ending net fixed assets) / 2
Average net fixed assets = ($125,000 + $75,000) / 2
Average net fixed assets = $100,000
Next, we can calculate the fixed asset turnover ratio
Fixed asset turnover ratio = Net sales / Average net fixed assets
Fixed asset turnover ratio = $850,000 / $100,000
Fixed asset turnover ratio = 8.5
Therefore, the fixed asset turnover ratio for Gemology Inc. is 8.5.
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What resources does the Christian faith give us which might help us think clearly about either your current personal economic situation or economics in general
The Christian faith provides several resources that can help individuals think clearly about their current personal economic situation or economics in general. First, the Bible encourages wise stewardship of resources and warns against greed and materialism.
This perspective can help individuals make wise financial decisions and avoid the pitfalls of consumerism. Second, the Christian faith emphasizes the value of community and caring for others. This can inform economic policy and decision-making that prioritizes the needs of the most vulnerable members of society.
Finally, faith in God's provision can bring peace and contentment in times of financial hardship or uncertainty. Trusting in God's faithfulness can help individuals navigate difficult economic situations with hope and resilience.
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You are the chief financial officer (CFO) of Gaga Enterprises, an edgy fashion design firm. Your firm needs million to expand production. How do you think the process of raising this money will vary if you raise it with the help of a financial institution versus raising it directly in the financial markets?
The process of raising $1 million for Gaga Enterprises will vary significantly if you choose to raise it with the help of a financial institution versus raising it directly in the financial markets.
1. Financial Institution: If you choose to raise the money through a financial institution, such as a bank or credit union, you would need to apply for a loan or a line of credit. This process typically involves providing financial statements, credit history, and a detailed business plan. The financial institution would then assess your creditworthiness and decide whether to approve the loan. Interest rates and repayment terms would be negotiated, and the institution may require collateral to secure the loan.
2. Financial Markets: Raising the money directly in the financial markets involves issuing debt (bonds) or equity (stocks) to investors. In this case, you would need to prepare a prospectus detailing your company's financial position, growth prospects, and the intended use of the funds. You may need to work with investment banks, lawyers, and accountants to ensure compliance with securities regulations. The process may involve roadshows and marketing efforts to attract investors. Once the securities are issued, you will need to manage ongoing reporting requirements and maintain relationships with investors.
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If CSC offers only one version of Modeler, which version should it be, at what price, and which market segments should it sell to
When deciding which version of Modeler to offer, at what price, and which market segments to sell to, CSC should consider several factors.
These include the needs of their target customers, competitor pricing, the value proposition of their product, the target market segments, and their marketing strategy. By conducting market research and gathering feedback from existing customers, CSC can identify which features and capabilities to include in their Modeler.
They can also determine the pricing strategy that aligns with their value proposition and ensure that it is competitive. By identifying the target market segments and developing a targeted marketing strategy, CSC can increase their chances of success in the market.
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Complete Question:
What are some factors that CSC should consider when deciding which version of Modeler to offer, at what price, and which market segments to sell to if they decide to only offer one version?"
Connolly Bank has a reserve requirement of 8%. Your mom deposits her most recent paycheck into her bank account at Connolly Bank, which results in an increase in excess reserves of $500. What is the maximum possible change in the money supply from this deposit?
The maximum possible change in the money supply from this deposit can be calculated using the money multiplier formula, which is 1/required reserve ratio. In this case, the required reserve ratio is 8%, so the money multiplier is 1/0.08, which is 12.5. This means that every $1 increase in excess reserves can potentially result in a $12.5 increase in the money supply.
The money multiplier formula is a theoretical model and the actual change in the money supply may vary due to various economic factors. Additionally, the Federal Reserve may also adjust the required reserve ratio to control the money supply in the economy. Therefore, while the maximum possible change in the money supply can be calculated using the formula, it's not always a reliable indicator of the actual change in the economy's money supply.
Therefore, since the deposit resulted in an increase of $500 in excess reserves, the maximum possible change in the money supply is $6,250 (500 x 12.5). However, it's important to note that this is the maximum possible change and actual change in the money supply may be less due to factors such as individuals holding onto their deposits as currency or banks choosing to hold onto excess reserves.
In conclusion, the maximum possible change in the money supply from your mom's paycheck deposit at Connolly Bank is $6,250, based on the required reserve ratio of 8% and the money multiplier formula.
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Sophie wants to apply a discount to a specific product in a customer's invoice. Which QuickBooks Online feature should she use to accomplish this
Sophie should make sure she has the "Discount" feature enabled in QuickBooks Online by going to "Settings," selecting "Account and Settings," and then navigating to the "Sales" tab. Here, she can enable "Discount" under "Sales Form Content."
Sophie can use the QuickBooks Online "Discount" feature to apply a discount to a specific product in a customer's invoice. This feature allows her to easily apply percentage or fixed amount discounts on individual items or the entire invoice. Here's how Sophie can do it:
1. Create or open an existing invoice.
2. Select the product she wants to apply the discount to, and enter the quantity and rate as needed.
3. In the next line, click the drop-down under "Product/Service" and choose "Discount."
4. In the "Description" column, she can provide a description for the discount, if desired.
5. In the "Amount" column, enter the discount amount or percentage, and ensure it's a negative number to subtract it from the total.
6. If using a percentage, she must type "%" after the number.
7. The discount will be applied to the specific product, and the invoice total will be updated accordingly.
Using the Discount feature ensures accuracy and professionalism when applying discounts to specific products in customer invoices.
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You purchased a share of Blyton Industries common stock 1 year ago for $37.50. During the year you received dividends totaling $0.60 and today the stock can be sold for $39.28. What total return did you earn on this stock over the past year
The every dollar you invested in Blyton Industries common stock, you earned a return of 6.3% over the past year.
To calculate the total return on your investment in Blyton Industries common stock over the past year, you need to consider both the capital gain and the dividend yield. The capital gain is the increase in the stock price from the time you bought it to the time you sold it, while the dividend yield is the amount of dividends you received as a percentage of the stock's price.
In this case, you bought the stock for $37.50 and sold it for $39.28, which represents a capital gain of $1.78. You also received dividends totaling $0.60, which is 1.6% of the stock's original price. Therefore, your total return on the stock over the past year is the sum of the capital gain and the dividend yield, which is $2.38 or 6.3% (1.6% + 4.7%).
This means that for every dollar you invested in Blyton Industries common stock, you earned a return of 6.3% over the past year. This is a respectable return, although it is important to remember that past performance is not necessarily indicative of future results and that investing always involves some degree of risk.
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Suppose there are 10 identical firms in an industry and that each produces 10% of total market sales. The HHI for this industry would indicate that the industry is:
This industry would be considered highly competitive based on its HHI of 0.1.
To calculate the Herfindahl-Hirschman Index (HHI), we need to square the market share of each firm in the industry and then sum up those squares. In this case, we have 10 identical firms each with a market share of 10%, so we can calculate the HHI as follows:
HHI = (0.1)^2 + (0.1)^2 + ... + (0.1)^2 (10 times)
= 0.01 + 0.01 + ... + 0.01 (10 times)
= 0.1
Since the HHI ranges from 0 to 10,000, an HHI of 0.1 indicates that the industry is highly competitive with a large number of small firms competing for market share. In fact, an HHI below 1,500 is generally considered to indicate a highly competitive market. Therefore, this industry would be considered highly competitive based on its HHI of 0.1.
It is worth noting that the HHI is just one measure of market concentration and is not always a reliable indicator of market power or competition. Other factors, such as the number and size of firms in the industry, barriers to entry, and the presence of substitutes, should also be considered when assessing market competition.
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At 111 units of output, marginal revenue is $8, marginal cost is $8, and average cost is $4. If consumers demand 111 units of output when the price is $10, what is the expected profit
The expected profit when producing and selling 111 units of output at a price of $10 per unit, with a marginal revenue of $8, marginal cost of $8, and average cost of $4, is $666.
The expected profit can be calculated using the following formula:
Profit = (Price - Average Cost) x Quantity
First, we need to calculate the quantity at which the price is $10. Since consumers demand 111 units of output at this price, we can assume that the quantity is 111.
Next, we can calculate the price minus the average cost, which is $10 - $4 = $6.
Finally, we can plug in the values we have:
Profit = ($6) x (111) = $666
Therefore, the expected profit when consumers demand 111 units of output at a price of $10 is $666. It's important to note that this assumes that there are no other costs or factors affecting the profit, such as fixed costs or changes in demand.
To calculate the expected profit, we first need to determine the total revenue and total cost for producing 111 units of output.
Total revenue is calculated by multiplying the price per unit by the quantity demanded, which in this case is $10 x 111 units = $1,110.
Next, we need to calculate the total cost. We know the average cost per unit is $4, so we can multiply that by the number of units produced (111) to find the total cost: $4 x 111 units = $444.
Now that we have the total revenue and total cost, we can calculate the expected profit by subtracting the total cost from the total revenue: $1,110 - $444 = $666.
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Nash Inc. uses LIFO inventory costing. At January 1, 2020, inventory was $211,147 at both cost and market value. At December 31, 2020, the inventory was $283,194 at cost and $265,230 at market value. Use an allowance account. Prepare the necessary December 31 entry under (a) the cost-of-goods-sold method (b) Loss method.
The use of an allowance account helps to ensure that inventory is properly valued on the balance sheet and reflects its current market value. This can be important for financial reporting purposes and for making informed business decisions.
Nash Inc. uses the LIFO inventory costing method, which means that the last items purchased or produced are the first to be sold. In this scenario, the company's inventory at the beginning of the year was $211,147 at both cost and market value. At the end of the year, the inventory was $283,194 at cost and $265,230 at market value.
To account for the difference between the cost and market value of inventory, the company will need to use an allowance account. An allowance account is used to adjust the value of inventory on the balance sheet to reflect its market value.
(a) Under the cost-of-goods-sold method, the necessary December 31 entry would be to debit Cost of Goods Sold for $18,917 ($283,194 - $265,230) and credit Allowance to Reduce Inventory to Market for the same amount. This entry recognizes the loss in value of the inventory during the year.
(b) Under the loss method, the necessary December 31 entry would be to debit Allowance to Reduce Inventory to Market for $15,917 ($265,230 - $211,147) and credit Inventory for the same amount. This entry recognizes the loss in value of the inventory from the beginning of the year to the end of the year.
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When the parties to a contract state the terms of the contract and show their intentions in words, either orally or in writing, what type of contract classification has been created
When the parties to a contract state the terms of the contract and show their intentions in words, either orally or in writing, they have created an express contract.
An express contract is a type of contract where the parties explicitly and specifically state the terms and conditions of the agreement, and their intentions are clearly expressed in words.
This type of contract can be either written or oral, and it may be a formal or informal agreement. Express contracts are often contrasted with implied contracts, where the terms of the agreement are inferred from the conduct of the parties rather than explicitly stated.
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If Silvia receives a pay cut and the income effect outweighs the price effect on her labor supply decision, she will:
The impact of a pay cut on Silvia's labor supply decision will depend on the relative strength of the income and price effects.
If Silvia receives a pay cut, her labor supply decision will depend on how the income effect and price effect impact her decision. The income effect refers to the change in Silvia's purchasing power due to the pay cut, while the price effect refers to the change in the relative price of leisure and work. If the income effect outweighs the price effect, Silvia will likely reduce her labor supply. This is because her purchasing power has decreased, which reduces her ability to purchase goods and services. As a result, she may decide to work less to maintain her previous level of consumption. However, if the price effect outweighs the income effect, Silvia will likely increase her labor supply. This is because the relative price of leisure has increased due to the pay cut. As a result, Silvia may decide to work more to compensate for the loss of income and maintain her previous level of consumption.
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At which stage of the product life cycle is a company likely to have its most complete product line?
A company is likely to have its most complete product line during the Maturity stage of the product life cycle. At this stage, the product has reached its peak in market share and profitability. Sales growth may be slower, but it is stable, and the market has become saturated with competition.
During the Maturity stage, a company has likely already gone through the Introduction and Growth stages. In the Introduction stage, the product is new to the market, and the company focuses on raising awareness and building a customer base. The Growth stage is characterized by rapid sales growth, increased market share, and the introduction of product variations or improvements.
In the Maturity stage, the company focuses on maintaining its market position by offering a comprehensive and complete product line. This may include a wide range of product variations, features, and options to cater to various customer segments and preferences. The company may also invest in promotions, advertising, and product improvements to maintain or increase its market share.
Additionally, the Maturity stage may involve price adjustments or cost reduction strategies to stay competitive and maintain profit margins. Companies in this stage must also monitor consumer trends and preferences, as well as competitor actions, to ensure their product line remains relevant and competitive.
To summarize, the Maturity stage of the product life cycle is when a company is likely to have its most complete product line, as it focuses on maintaining market position, offering product variations, and adjusting strategies to stay competitive in a saturated market.
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If initially the money supply is $1 trillion, velocity is 5, the price level is 1, and real GDP is $5 trillion, an increase in the money supply to $2 trillion increases the price level to ________ .
An increase in the money supply from $1 trillion to $2 trillion will increase the price level from 1 to 2.
If initially the money supply is $1 trillion, velocity is 5, the price level is 1, and real GDP is $5 trillion, we can use the equation of exchange (MV = PY) to find the new price level after an increase in the money supply to $2 trillion.
MV = PY
1 trillion x 5 = 1 x $5 trillion
The above equation tells us that the current nominal GDP is $25 trillion.
Now, if the money supply increases to $2 trillion, we can use the same equation to find the new price level:
2 trillion x 5 = P x $5 trillion
This equation tells us that the new nominal GDP is $50 trillion. Solving for P, we get:
P = ($2 trillion x 5) / $5 trillion
P = 2
Therefore, an increase in the money supply from $1 trillion to $2 trillion will increase the price level from 1 to 2.
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A restaurant sells pizza at a rate of $10/slice. Expenses for the restaurant include raw material for pizza at $5 per slice, $100 as monthly rental and $50 monthly as insurance. How many slices should the restaurant sell in a month to break even
To break even, the restaurant needs to sell enough slices of pizza to cover its expenses. To calculate the break-even point for the restaurant, we'll use the following terms:
The break-even point is the number of pizza slices the restaurant needs to sell to cover all its expenses.
To find this, we'll consider the costs per slice, fixed expenses (rent and insurance), and the selling price.
The profit per slice is the selling price ($10) minus the cost of raw materials ($5), which equals $5 per slice. The fixed expenses are the monthly rental ($100) and insurance ($50), totaling $150.
To break even, the profit per slice multiplied by the number of slices sold should equal the fixed expenses: $5 * X = $150. Solving for X, we get X = $150 / $5, which is 30 slices.
So, the restaurant should sell 30 pizza slices in a month to break even.
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An annuity is: Multiple Choice Not used by lotteries today Never made up of equal payments A one-time payment A stream of payments
An annuity is a stream of payments made at regular intervals over a specific period of time.The answer is D.
These payments are typically made as a result of a financial contract, such as an insurance policy or retirement plan. An annuity can be made up of equal payments, which are paid out on a regular schedule, or it can be variable, with payments that change based on certain factors.
An annuity is often used as a means of generating income during retirement, as it provides a predictable stream of payments that can be relied upon to cover living expenses.
While annuities are not typically used by lotteries today, they are a popular financial instrument used by individuals and businesses alike to manage risk and generate income.
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Gary has a health insurance policy with the following provisions: $550 deductible, $55 copay, and 80/20 coinsurance provision. If Gary has an accident that results in $3155 in medical expenses, how much will he have to pay out of pocket
Gary with all the given provisions and data of the medical expenses, he has to pay out of pocket $1,150.
Given Data:
Deductible=$550
Copay = $55
Co-insurance provision=20%
Medical insurance expanses = $3,155 x 20%
Medical insurance expanses = $631
Total expenses = $550 + $55 + $631
Total expenses= $1,236
Health insurance or medical insurance (also known as medical aid in South Africa) is a type of insurance that covers all or a portion of the risk that a person would need medical attention. Like/similar to other types of insurance, the risk is split between multiple parties.
Insurers can establish a regular financial structure by assessing overall health risks and healthcare system costs across risk pools. B. Monthly premiums or payroll taxes to provide funds for medical services provided under the policy. Benefits are administered by a central agency, such as a government agency, commercial enterprise, or private enterprise.
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________ suggest(s) that FDI will be more likely to occur when transaction costs with a second firm are high.
The OLI Framework (Ownership, Location, and Internalization) suggests that FDI (Foreign Direct Investment) will be more likely to occur when transaction costs with a second firm are high. High transaction costs encourage firms to internalize their operations, leading to increased FDI.
The OLI Framework is a theoretical model that helps to explain why firms engage in foreign direct investment (FDI). According to the framework, there are three main factors that influence the decision of firms to invest in foreign markets: ownership advantages, location advantages, and internalization advantages.
Ownership advantages refer to the unique assets and capabilities that a firm possesses that give it a competitive advantage over other firms in the industry. Location advantages refer to the advantages that a particular location offers, such as access to natural resources, skilled labor, or a large market. Internalization advantages refer to the benefits that a firm gains by owning and controlling its operations, rather than contracting with a second firm to perform the same functions.
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Classifying an electronic document is the first phase of the electronic records life cycle. a. True b. False
The given statement "Classifying an electronic document is the first phase of the electronic records life cycle" is b. False because The electronic records life cycle consists of several phases, and classifying a document is not the initial step.
The first phase in the electronic records life cycle is actually the creation or receipt of the record. In this phase, a document is either produced by an individual or organization, or is received from an external source, such as an email, an online form submission, or a downloaded file. This step is essential because it initiates the life cycle and ensures that the record exists in a tangible form.
Classifying a document, which involves assigning it to a specific category based on its content, purpose, or function, typically takes place during the subsequent phase known as organization and maintenance. This step ensures that the record can be easily located, retrieved, and managed throughout its life cycle.
After the organization and maintenance phase, the life cycle continues with the use and dissemination of the record, which involves sharing, distributing, or providing access to the document. The penultimate phase is the preservation of the record, ensuring its long-term protection, storage, and retention. Lastly, the life cycle concludes with the disposal or archival of the record, determining its final status, whether that be destruction or long-term preservation.
In summary, classifying an electronic document is not the first phase of the electronic records life cycle; instead, it is part of the organization and maintenance phase, which follows the initial creation or receipt of the record.
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Ami's cumulative earnings before the payroll period ended September 11 were $115,800. The cumulative earnings, including those of this payroll period, total $118,710. The amount of her current pay period earnings recorded in the Social Security Taxable Earnings column is
The amount of Ami's current pay period earnings recorded in the Social Security Taxable Earnings column is $2,910.
To calculate Ami's current pay period earnings recorded in the Social Security Taxable Earnings column, we need to subtract her cumulative earnings before the pay period from her total cumulative earnings after the pay period.
Total earnings for the pay period = Cumulative earnings after the pay period - Cumulative earnings before the pay period
Total earnings for the pay period = $118,710 - $115,800
Total earnings for the pay period = $2,910
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Consider the market for widgets. Widgets can be produced in the United States or abroad. Assume that U.S. consumers wish to buy the least expensive widgets possible. However, if widgets from all countries cost the same, consumers would prefer to buy domestically. If international trade is allowed, what is the equilibrium price
The equilibrium price in the market for widgets will depend on the supply and demand for both domestic and foreign widgets.
Assuming that U.S. consumers want to buy the least expensive widgets possible, foreign producers may have a cost advantage due to lower labor or production costs. Therefore, the supply of foreign widgets may increase, resulting in a downward pressure on prices. However, if all widgets cost the same, U.S. consumers would prefer to buy domestically, which would increase demand for domestic widgets and shift the equilibrium towards a higher price. The exact equilibrium price will depend on the relative supply and demand for both domestic and foreign widgets, as well as any trade policies or barriers that may affect the market.
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In an employee-employer relationship, according to Friedman, the employee is bound to do what the employer says:_________ a) no matter what the employer wants the employee to do b) so long as everyone is following the norms of their society c) up to the point where doing what the employer says violates a third party's rights d) so long as doing so is consistent with the telos of business firms, and so contributes to overall human flourishing
so long as doing so is consistent with the telos of business firms, and so contributes to overall human flourishing.
According to Milton Friedman, the well-known economist and Nobel laureate, in an employee-employer relationship, the employee is bound to do what the employer says so long as doing so is consistent with the telos of business firms, and so contributes to overall human flourishing.
This means that employees should work towards the goals and objectives of the business firm, and their actions should contribute to the overall success and prosperity of the company, as well as society at large.
Option (a) is incorrect as it suggests that the employee must blindly follow any order from the employer, which is not what Friedman argues.
Option (b) is also incorrect as it suggests that the employee's obligation is limited to following societal norms, which is not the same as following the goals and objectives of the business firm.
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Overhead is usually calculated: a)tracking each indirect labor worker b)estimating the cost using a rate c)identifying the material waste not used in production
Option b: Overhead is usually/normally calculated: estimating the cost using a rate.
The fraction of a product's cost that can be directly connected to a specific cost unit is called the overhead cost. In other words, overhead is the broad name for costs spent during production. By virtue of its nature, it cannot be directly allocated to a unit of production; rather, it requires some analysis and calculation. Consequently, one method of determining overhead is to estimate the cost using a rate.
Overhead costs are expenses incurred during the production of goods or services. Overhead expenses are expenses that are not directly tied to productivity, such the cost of the corporate headquarters. Direct production-related costs are subjected to overhead rates in order to distribute or allocate the overhead in accordance with specific key metrics. For instance, based on the number of machine hours or labour hours necessary to create the product, overhead costs can be calculated at a predetermined rate.
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The primary determinant of portfolio returns is how the portfolio manager allocates funds across: Securities within an asset class. Different geographic regions. Various asset classes.
The primary determinant of portfolio returns is how the portfolio manager allocates funds across various asset classes, securities within an asset class, and different geographic regions. This allocation is often based on the portfolio manager's investment objectives, risk tolerance, and market outlook.
For example, a portfolio manager who is bullish on the technology sector may allocate a higher percentage of funds towards technology stocks within the equity asset class, while reducing exposure to other sectors. Similarly, a portfolio manager who is bearish on the US economy may choose to invest a larger portion of the portfolio in international equities or fixed income securities. The allocation decision is crucial because it affects the portfolio's overall risk and return characteristics. A well-diversified portfolio that spreads investments across various asset classes, securities, and geographic regions can reduce volatility and potentially enhance returns. On the other hand, a poorly diversified portfolio that is heavily concentrated in one asset class or region can expose the portfolio to higher risk and potentially lower returns. In summary, the primary determinant of portfolio returns is how the portfolio manager allocates funds across various asset classes, securities within an asset class, and different geographic regions. A well-diversified portfolio that is tailored to the investor's objectives and risk tolerance can potentially generate higher returns and reduce risk over the long term.
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Newport Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $206,000. The equipment will have an initial cost of $905,000 and have a 6 year life. There is no salvage value for the equipment. If the hurdle rate is 10%, what is the approximate net present value
The approximate net present value of the new equipment is $92,181.
1. Initial cost, and hurdle rate. In this case, the annual increase in cash flow is $206,000, the initial cost is $905,000, and the hurdle rate is 10%.
2. the present value (PV) of the annual cash flow for each year. The formula for PV is:
PV = Cash Flow / (1 + Hurdle Rate) ^ Year
3. Sum the present values of cash flows for all six years to get the total present value.
4. Subtract the initial cost from the total present value to get the NPV.
Year 1: PV1 = $206,000 / (1 + 0.10) ^ 1 = $187,273
Year 2: PV2 = $206,000 / (1 + 0.10) ^ 2 = $170,248
Year 3: PV3 = $206,000 / (1 + 0.10) ^ 3 = $154,770
Year 4: PV4 = $206,000 / (1 + 0.10) ^ 4 = $140,700
Year 5: PV5 = $206,000 / (1 + 0.10) ^ 5 = $127,909
Year 6: PV6 = $206,000 / (1 + 0.10) ^ 6 = $116,281
Total Present Value = PV1 + PV2 + PV3 + PV4 + PV5 + PV6 = $187,273 + $170,248 + $154,770 + $140,700 + $127,909 + $116,281 = $997,181
NPV = Total Present Value - Initial Cost = $997,181 - $905,000 = $92,181
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If interest rates were lowered, we would expect the AD curve to shift. This will lead to a(n) ___________ in the price level and a(n) ____________ in the unemployment rate.
If interest rates were lowered, we would expect the AD (aggregate demand) curve to shift to the right. This will lead to a(n) increase in the price level and a(n) decrease in the unemployment rate.
Lowering interest rates makes it less expensive for firms and households to borrow money, leading to an increase in investment and consumption spending. As a result, the overall demand for goods and services increases, shifting the AD curve to the right. With higher demand, firms are able to charge higher prices, leading to an increase in the price level. At the same time, the increase in demand for goods and services will require firms to hire more workers, leading to a decrease in the unemployment rate.
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If a firm uses its overall cost of capital to discount cash flows from higher risk projects, it will accept ______ projects.
If a firm uses its overall cost of capital to discount cash flows from higher risk projects, it will accept fewer projects.
The cost of capital is the minimum rate of return that a firm must earn on its investments in order to satisfy its investors. The cost of capital takes into account both the cost of debt and the cost of equity and is calculated by weighting these costs according to their relative proportions in the firm's capital structure. Higher risk projects typically have a higher cost of capital, as investors demand a higher return to compensate for the additional risk. If a firm uses its overall cost of capital to discount cash flows from higher risk projects, it will accept fewer projects, as the higher discount rate will result in lower net present values for these projects. To account for the higher risk of these projects, the firm may need to use a higher discount rate, such as a risk-adjusted cost of capital, to ensure that it is adequately compensating its investors for the additional risk.
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A portfolio is invested 37 percent each in Stock A and Stock B and 26 percent in Stock C. What is the expected risk premium on the portfolio if the expected T-bill rate is 3.25 percent
The risk premium is the additional return earned by an investor for taking on additional risk. In this case, we need to calculate the expected risk premium on a portfolio that is invested in three different stocks.
To do this, we need to know the expected return and risk of each stock, as well as the weight of each stock in the portfolio. Let's assume that the expected return and risk for each stock are as follows:
Stock A: Expected return of 9% and risk (standard deviation) of 12%
Stock B: Expected return of 7% and risk (standard deviation) of 8%
Stock C: Expected return of 5% and risk (standard deviation) of 5%
Based on the information provided in the question, the portfolio is invested 37% in Stock A, 37% in Stock B, and 26% in Stock C. To calculate the expected return of the portfolio, we need to multiply the expected return of each stock by its weight in the portfolio and then sum the results:
Expected return of portfolio = (0.37 x 9%) + (0.37 x 7%) + (0.26 x 5%) = 7.1%
To calculate the risk of the portfolio, we need to use the weighted average of the risks of each stock. This is calculated by taking the square root of the sum of the squared weights multiplied by the squared risks:
Portfolio risk = sqrt((0.37^2 x 0.12^2) + (0.37^2 x 0.08^2) + (0.26^2 x 0.05^2)) = 0.097 or 9.7%
Now that we have the expected return and risk of the portfolio, we can calculate the expected risk premium by subtracting the risk-free rate (in this case, the expected T-bill rate of 3.25%) from the expected return of the portfolio:
Expected risk premium = Expected return of portfolio - Risk-free rate = 7.1% - 3.25% = 3.85%
Therefore, the expected risk premium on the portfolio is 3.85%.
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