Complete Question:
Edna is a leading brain surgeon in the United States. She enters into a contract to perform a complicated brain surgery on Ben. However, since Edna is very busy, she wants to assign this contract to a less experienced surgeon, Charles. This would be Charles's first operation of this type. Ben can object to this assignment and prevent it because the contract between Ben and Edna is a(n):
Group of answer choices.
A. contract for services to be performed in the future.
B. contract involving personal skill.
C. services contract.
D. employment contract.
Answer:
B. contract involving personal skill.
Explanation:
In this scenario, Edna a leading brain surgeon in the United States enters into a contract to perform a complicated brain surgery on Ben. However, Edna is very busy and wants to assign this contract to a less experienced surgeon, Charles which would be his first operation of this type. Hence, Ben can object to this assignment (brain surgery) and prevent it because the contract between Ben and Edna is a contract involving personal skill.
Apparently, it can be deduced that Edna has competent and professional skills which is the reason why she's the leading brain surgeon in USA. Ben having this information at his disposal chose to go into the contract with Edna, who is an experienced brain surgeon. Therefore, the contract between the two (2) parties is solely based on Edna's personal skill.
Regulations that permit a regulated firm to cover its costs and to make a normal level of profit are commonly referred to as
Answer:
cost plus regulation
Explanation:
Cost plus regulation is generally used by the government to regulate monopolies (mainly natural monopolies like utilities, and others). The price that the monopoly can charge for its goods or services is set by the government and it should generally cover all of the company's costs plus allow it to make a "normal" profit.
Builtrite has calculated the average cash flow to be $16,000 with a standard deviation of $4000. What is the probability of a cash flow being less than $9000? (Assume a normal distribution.)
Answer:
4%
Explanation:
For Builtrite, we can find the probability of cash flows by using the following formula:
Z = (X - C) / S
Average Cash Flow is $16000 which denoted by "C"
Standard Deviation is $4000 and is denoted by "S"
And
For cash flows that are less than $9000 which is denoted by X in the equation, "Z" can be calculated as under:
Z = (X - C) / S = ($9,000 - $16,000) / $4,000 = -1.75
As Z is less than -1.75, now we can see that the probability from the Z-table is 4% for -1.75.
Hence the probability of cash flow below $9,000 is 4%.
Ten years ago you put $150000.00 into an interest earning account. Today it's worth $275000. What is the effective annual interest earned on the account
Answer:
the effective annual interest earned on the account is 6.25%.
Explanation:
The effective annual interest earned on the account can be calculated as follows :
PV = - $150,000
N = 10
PMT = $0
P/yr = 1
FV = $275,000
R = ?
Using a Financial calculator, the effective annual interest, R, earned on the account will be : 6.2488 or 6.25%.
Skysong, Inc. reports the following liabilities (in thousands) on its December 31, 2020, balance sheet and notes to the financial statements. Accounts payable $4,392.0 Mortgage payable $6,845.0 Unearned rent revenue 1,650.0 Notes payable (due in 2023) 351.0 Bonds payable 2,003.0 Salaries and wages payable 651.0 Current portion of mortgage payable 2,228.0 Notes payable (due in 2021) 2,584.0 Prepare the liabilities section of Skysong’s balance sheet as at December 31, 2020.
Answer:
Skysong, Inc.
Liabilities section
Current liabilities:
Accounts payable $4,392Salaries and wages payable $651Unearned rent revenue $1,650Mortgage payable $2,228Notes payable $2,584Total current liabilities $11,505Long term liabilities:
Mortgage payable $4,617 Notes payable (due in 2023) $351Bonds payable $2,003Total long term liabilities $6,971Total liabilities: $18,476
Michelle gives out a business card with an e-mail address on it. According to the comments that accompany the UETA, it may be reasonable to infer that Michelle has consented to
Answer:
Explanation:
transact business electronically.
Planet Company had operating income of $12,000, average operating assets of $125,000, and sales of $45,000. What is Planet's return on investment (ROI)
Answer:
36.36%
Explanation:
Return on investment is given as;
Profit / Cost of goods sold × 100%
Given that profit is $12,000 and sales is $45,000 ;
Cost of goods sold
= $45,000 - $12,000
= $33,000
Therefore, return on investment is
= 12,000 / 33,000 × 100%
= 36.36%
A manufacturing company is thinking about building a new factory. The new factory, if built, will give a return of $200 million in 4 years, and it would cost $125 million today to build. The company will decide to build the factory if the interest rate is
Answer:
The company will decide to build the factory if the interest rate is 12.47 %.
Explanation:
The required interest rate r, can be determined as follows ;
PV = - $125 million
n = 4
Pmt = $0
P/yr = 1
FV = $200 million
r = ?
Using a Financial Calculator, the required interest rate r, is 12.4683 or 12.47 % (2 decimal places)
Consider Kodak's core competency before Fisher's arrival. As the market shifted from film to digital did the company's historical core competency still quality as a core competency? Did it pass the core competency test question(s)? If so, which one(s)?
a. Test 1
b. Test 2
c. Test 3
Answer: None of the three tests were passed as the market transitioned.
Explanation: one of the core competencies of Kodak were
1. Film was the basics of their critics products and services. As the market transitioned from the use of films for camera and devices to digital, Kodak refused or was reluctant to take the necessary risk to expand and forge beyond it current market and product to the digitalized market as a result suffered the consequence.
In the short run, the quantity of output that firms supply can deviate from the natural level of output if the actual price level in the economy deviates from the expected price level. Several theories explain how this might happen.
Answer: fall, reducing, fall below
Explanation:
the misperceptions theory asserts that changes in the price level can temporarily mislead firms about what is happening to their output prices. Consider a soybean farmer who expects a price level of 100 in the coming year. If the actual price level turns out to be 90, soybean prices will __________ , and if the farmer mistakenly assumes that the price of soybeans declined relative to other prices of goods and services, she will respond by __________ the quantity of soybeans supplied. If other producers in this economy mistake changes in the price level for changes in their relative prices, the unexpected decrease in the price level causes the quantity of output supplied to __________the natural level of output in the short run.
Bawl purchased ABC bonds on 1/1/21. Data regarding these available-for-sale securities follow: Cost MV December 31, 2021 $100,000 $ 91,000 December 31, 2022 100,000 111,000 December 31, 2023 100,000 106,000 The unrealized Gain/Loss reported in OCI of the 2023 Comprehensive Income statement is:
Answer:
Bawl with ABC bonds
The unrealized Gain/Loss reported in OCI of the 2023 Comprehensive Income statement is:
A Loss of $5,000
Explanation:
a) Data and Calculations:
Cost MV Unrealized Profit or (Loss)
December 31, 2021 $100,000 $ 91,000 $9,000 (Loss)
December 31, 2022 100,000 111,000 20,000
December 31, 2023 100,000 106,000 5,000 (Loss)
Available-for-sale Investment
Debit Credit
Dec 31 100,000
Loss 9,000
Dec 31 91,000
Profit 20,000
Dec 31 111,000
Loss 5,000
Dec 31 106,000
The Available-for-sale Investment will show a loss of $5,000 in the Other Comprehensive Income of the 2023 Comprehensive Income Statement based on the yearly adjustments to the account with losses and profits.
In the past, Taylor Industries has used a fixed−time period inventory system that involved taking a complete inventory count of all items each month. However, increasing labor costs are forcing Taylor Industries to examine alternative ways to reduce the amount of labor involved in inventory stockrooms, yet without increasing other costs, such as shortage costs. Here is a random sample of 20 of Taylor's items.
ITEM NUMBER ANNUAL USAGE ITEM NUMBER ANNUAL USAGE
1 $ 1,500 11 $ 13,000
2 12,000 12 600
3 2,200 13 42,000
4 50,000 14 9,900
5 9,600 15 1,200
6 750 16 10,200
7 2,000 17 4,000
8 11,000 18 61,000
9 800 19 3,500
10 15,000 20 2,900
a. What would you recommend Taylor do to cut back its labor cost? (Illustrate using an ABC plan.)
b. Item 15 is critical to continued operations. How would you recommend it beclassified?
Answer:
a) Taylor Industries can successfully cut back its labor cost in inventory stockrooms by counting only high-value items. These items are determined by reference to their Annual Usage values. The items' annual usage values should be used as the activity cost pool for accumulating and allocating labor cost in inventory stockrooms. Taylor Industries can establish a benchmark or cutoff point so that only the items meeting this benchmark are counted. For example, the items with annual usage value above $5,000 should be included in the items to be counted. This strategy will reduce the number of items to be counted and therefore the labor cost.
b) Since item 15 is critical to Taylor Industries' continued operations, it should be classified as a direct materials cost and not an overhead cost.
Explanation:
a) Data and Calculations:
a random sample of 20 of Taylor's items:
ITEM NUMBER ANNUAL USAGE ITEM NUMBER ANNUAL USAGE
1 $ 1,500 11 $ 13,000
2 12,000 12 600
3 2,200 13 42,000
4 50,000 14 9,900
5 9,600 15 1,200
6 750 16 10,200
7 2,000 17 4,000
8 11,000 18 61,000
9 800 19 3,500
10 15,000 20 2,900
Average annual usage value = $12,657.50
The standard overhead applied is based on the ______ level of activity multiplied by the predetermined overhead rate.
Answer: actual level
Explanation:
It should be noted that when determining the standard overhead cost rate, overhead costs have to be grouped into the fixed cost and the variable costs.
The standard overhead applied is based on the actual level of activity multiplied by the predetermined overhead rate.
At first glance, the research reported in the Washington Post article Why We've Been Hugely Underestimating the Overfishing of the Oceans may appear to be only bad news for the world's stock of fish. However, researchers believe that their discovery of how much overfishing has been underestimated could also be good news. Determine whether each statement should be considered good news or bad news based on the information in the article.
Good news Bad news
a. Fisheries may be able to feed more people than previously thought.
b. Policy made using FAO data could be poorly made because FAO data does not match reality.
c. Severe declines in catches since the 1990s may be due to unsustainable fishing.
d. Sustainable food production may be more at risk than scientists thought due to the fishing industry catching far more fish than previously believed
e. Declines in catches have been even greater than FAO data suggests.
f. When catches peaked, fisheries were actually much more productive than previously thought
Answer:
According to the article, the following statements is classified under the following headings:
Good News:
a. Fisheries may be able to feed more people than previously thought.
b. Policy made using FAO data could be poorly made because FAO data does not match reality.
f. When catches peaked, fisheries were actually much more productive than previously thought
Bad News:
c. Severe declines in catches since the 1990's may be due to unsustainable fishing.
d. Sustainable food production may be more at risk than scientists thought due to the fishing industry catching far more fish than previously believed
e. Declines in catches have been even greater than FAO data suggests.
Explanation:
NEED HELP ASAP!!
Which of the following is an example of a need? (1 point)
cell phone
television
vehicle
water**
Which of the following is a job that would supply a service that meets a want? (1 point)
grocer
doctor
hair stylist**
plumber
What is the term for something that is not necessary but makes your life easier and more enjoyable? (1 point)
businesses**
economics
needs
wants
Which of the following is an example of a job surplus? (1 point)
The demand for roofers is higher than the number of people willing to do roofing.**
Roofers demand more pay for the work they are doing.
The number of roofers is higher than the roofing jobs available.
There are more roofing materials being manufactured than there are houses that need them.
Answer: #1.Water #2.Doctor #3.Wants #4.There are more foofing materialsbeing manufactured than there are houses that need them.
Explanation:
Answer:
D.) Water
C.) Hair Stylist
D.) Want
A.) The demand for roofers is higher than the number of people willing to do roofing.
You haven't been able to spend much time talking with your team lately, but your workload should be back to normal soon. When you checked in with your team today, several associates joked about being surprised to see you.
Assuming all option are possible, what would you be most and least likely to do?
Answer and Explanation:
I would most likely do this:
Explain the issue to the team and praise them for their work in my absence. I would let them know there would be more time soon. It is very essential to praise and appreciate these efforts by the associates since I have been absent for a while and do not know what efforts they have been putting in.
I would be least likely to:
Talk to the manager to explain this situation or propose that my some of my commitments are eased for me to have more time with my team
The Janjua Company had the following account balances at 1/1/18: Common Stock $65,000 Treasury Stock (at cost) 13,400 Paid-in-Capital in Excess of Par 82,000 Investments in AFS Debt Securities 40,000 FVA (AFS) 1,500 credit Retained Earnings 22,000 On that date, the Accumulated OCI account was at its proper balance. There were no sales or purchases of Common Stock or Investments during 2018. Prior to any adjusting journal entries related to the investments, 2018 Net Income was $10,300. No other transactions affecting Retained Earnings occurred. Fair Value of the Investments at 12/31/2018 was $40,000.Required:a. Prepare the 12/31/18 journal entry to adjust the investment to fair value.b. Prepare the complete 12/31/18 Equity section of the balance sheet.
Answer:
The Janjua Company
a) Journal Entry:
Debit FVA (AFS) $1,500
Credit Unrealized Gain on Investments $1,500
To record the unrealized gain on AFS investment.
b) Equity Section of the Balance Sheet as of December 31, 2018:
Common Stock $65,000
Treasury Stock (at cost) (13,400)
Paid-in-Capital in Excess of Par 82,000
Retained Earnings 32,300
Total Stockholders' Equity $165,600
Explanation:
Retained Earnings:
1/1/18 = $22,000
Net income = $10,300
12/31/18 = $32,300
FVA = The Janjua Company's Funding Valuation Adjustment is the contra account of Investments where The Janjua Company adjusts the value of investments at the end of the account period. When the value of the investment reaches $40,000, the unrealized gain is debited to the FVA account. This effectively reverses the credit balance and restores the investments to the adjusted balance of $40,000.
A project that provides annual cash flows of $2,700 for nine years costs $8,800 today.
Requirement 1:A. At a required return of 9 percent, what is the NPV of the project?
B. At a required return of 28 percent, what is the NPV of the project?
C. At what discount rate would you be indifferent between accepting the project and rejecting it?
Answer:
A. $8,187.17
B. $597.38
C. 30%
Explanation:
Calculate the Net Present Value of the Project at the Required Return of 9%
The following is the calculation of NPV using a financial calculator :
($8,000) CFj
$2,700 CFj
$2,700 CFj
$2,700 CFj
$2,700 CFj
$2,700 CFj
$2,700 CFj
$2,700 CFj
$2,700 CFj
$2,700 CFj
9.00 % i/yr
Shift NPV $8.187.1666 or $8,187.17
Calculate the Net Present Value of the Project at the Required Return of 9%
The following is the calculation of NPV using a financial calculator :
($8,000) CFj
$2,700 CFj
$2,700 CFj
$2,700 CFj
$2,700 CFj
$2,700 CFj
$2,700 CFj
$2,700 CFj
$2,700 CFj
$2,700 CFj
28.00 % i/yr
Shift NPV $597.3765 or $597.38
You will be indifferent between accepting the project and rejecting it at the internal rate of return. The Internal Rate of Return is the interest rate that makes the Present Vale of Cash Flows to equal the Initial Cost of the Investment.
Use the Data given to find the Internal Rate of Return :
($8,000) CFj
$2,700 CFj
$2,700 CFj
$2,700 CFj
$2,700 CFj
$2,700 CFj
$2,700 CFj
$2,700 CFj
$2,700 CFj
$2,700 CFj
Shift IRR 30%
what is Social responsibilities in business
Answer:
Social responsibility in business, also known as corporate social responsibility (CSR), pertains to people and organizations behaving and conducting business ethically and with sensitivity towards social, cultural, economic, and environmental issues.
Design specifications reflecting customer requirements for a product are known as:________
a) control limits
b) capability indices
c) natural variability
d) tolerances
Answer:
d) Tolerances.
Explanation:
This is seen to directly reflect on total range of the customer satisfactory choices of the said product. It is also known according to product research and customer satisfaction on choices to conventionally deal properly with the variation of manufacturing processes to meet the requirements of product quality. Cases that bring up things like customer development in product customization has also been generally accepted that customer requirements also have acceptable tolerance range. Top business moguls are seen to most times leverage on these requirements which include tolerance, customers are more likely to get their desired product.
Bramble Corp. uses flexible budgets. At normal capacity of 19000 units, budgeted manufacturing overhead is: $57000 variable and $270000 fixed. If Stone had actual overhead costs of $328800 for 21000 units produced, what is the difference between actual and budgeted costs
Answer:
$4,200 Favorable
Explanation:
Given the above information,
Variable overhead rate
= $57,000 / 19,000 units
= $3 per unit
Overhead variance = Real - Allocated
= $328,800 - ($3 × 21,000 + $270,000)
= $328,800 - $333,000
= $4,200 Favorable
O'Mally Department Stores is considering two possible expansion plans. One proposal involves opening 5 stores in Indiana at the cost of $1,810,000. Under the other proposal, the company would focus on Kentucky and open 6 stores at a cost of $2,000,000. The following information is available: Indiana proposal Kentucky proposal Required investment $1,810,000 $2,000,000 Estimated life 6 years 6 years Estimated residual value $80,000 $40,000 Estimated annual cash inflows over the next 10 years $700,000 $800,000 Required rate of return 13% 13% The accounting rate of return for the Indiana proposal is closest to (Round any intermediary calculations to the nearest dollar, and round your final answer to the nearest hundredth of a percent, X.XX%.)
Answer:
O'Mally Department Stores
The accounting rate of return for the Indiana proposal is closest to 24.28%
Explanation:
a) Data and Calculations:
Indiana proposal Kentucky proposal
Required investment $1,810,000 $2,000,000
Estimated life 6 years 6 years
Estimated residual value $80,000 $40,000
Estimated depreciable cost $1,730,000 $1,960,000
Average depreciable cost $288,333 $326,667
Estimated annual cash inflows
over the next 10 years $700,000 $800,000
Average cash inflows $70,000 $80,000
Required rate of return 13% 13%
Accounting rate of return = Average cash inflows/Average depreciable cost x 100 = $70,000/$288,333 x 100 = 24.28%
The Indiana proposal of O'Mally Department Stores' accounting rate of return is the ratio of estimated accounting profit to the average investment cost. The estimated accounting profit is equivalent to the average cash inflow and the average investment cost is equivalent to the average depreciable cost.
The current price of a certain non-dividend-paying stock is $120.00. The future 2 pri ce is characterized by the following probability distribution:
EVENT PROBABILITY FUTURE PRICE P RETURN R
A 0.18 $180 ?
B 0.09 $108 ?
C 0.3 $90 ?
D 0.25 $81 ?
E ? $225
Calculate [i] the expected future price, [ii] the return in each of the five events, and [iii] Calculate l the expected return. Recall that for a stock which does not pay dividends, return is just ain divided by the initial price. Expected return can be calculated in two ways:
[a]: You could calculate the return to be realized in each of the five events, and then calculate the expected value of the return, or,
[b]: You could calculate the expected price first, and then use the possible fact that:
E(R) = E(P)/Po - 1
Answer:
Non-Dividend-Paying Stock
i) Calculation of the expected future price:
EVENT PROBABILITY FUTURE PRICE P RETURN R
A 0.18 $180 $32.40
B 0.09 $108 $9.72
C 0.3 $90 $27.00
D 0.25 $81 $20.25
E 0.18 $225 $40.50
Total 1.0 $129.87 $129.87
Future price = the expected returns = $129.87
ii) Calculation of the return in each of the five events:
EVENT PROBABILITY FUTURE PRICE P RETURN R
A 0.18 $180 $32.40
B 0.09 $108 $9.72
C 0.3 $90 $27.00
D 0.25 $81 $20.25
E 0.18 $225 $40.50
iii) Calculation of the expected return:
EVENT PROBABILITY FUTURE PRICE P RETURN R
A 0.18 $180 $32.40
B 0.09 $108 $9.72
C 0.3 $90 $27.00
D 0.25 $81 $20.25
E 0.18 $225 $40.50
Total 1.0 $129.87
Explanation:
a) Data & Calculations:
EVENT PROBABILITY FUTURE PRICE P RETURN R
A 0.18 $180 ?
B 0.09 $108 ?
C 0.3 $90 ?
D 0.25 $81 ?
E ? $225
If stock A does not pay dividend, it will attract capital appreciation which compensates for the unpaid dividends since the company has increased assets over liabilities. When the assets grow more than the liabilities from the reinvestment of the profits, the net value of the business which is the equity increases. This capital growth belongs to the stockholders and is distributable to them in the form of the future price of the stock, which appreciates with the capital growth.
Your portfolio is comprised of 30 percent of stock X, 25 percent of stock Y, and 45 percent of stock Z. Stock X has a beta of 1.16, stock Y has a beta of 1.47, and stock Z has a beta of 0.42. What is the beta of your portfolio
Answer:
The beta of your portfolio is 0.9045
Explanation:
Hope this help :D
The Digby company will continue to train their existing workforce at their current level to help reduce turnover and improve productivity next year. Employee training costs have increased to $30 per hour. How much would their training costs per employee be to the nearest dollar
Answer:
$1,200
Explanation:
Data provided
Number of training hours = 40
Per unit cost = $30 per hour
According to the given situation, the computation of training costs per employee is shown below:-
Total cost = Number of hours × Per unit cost
= 40 × $30
= $1,200
Therefore for computing the training costs per employee we simply applied the above formula.
Answer:
$1200
Explanation:
The training cost per hour is $30 and if we see below in the Human Resources Summary, we can see that Digby Training Hours are 40 Hours.
This implies that:
Total Training Cost = 40 Hours * $30 per hour = $1200
A company had total sales of $840,000, net sales of $821,400, and an average accounts receivable of $111,000. Its accounts receivable turnover equals:
Answer:
7.4
Explanation:
accounts receivable turnover is ratio of total net sales and average account receivable.
accounts receivable turnover = total net sales/ average account receivable
Given
net sales = $821,400,
average accounts receivable = $111,000
accounts receivable turnover =$821,400/111,000 = 7.4 Answer
Why do we need to deduct gain on sale of plant assets from net income to arrive at net cash flow from operating activities
Answer:
The money received from the sale of assets is included in the net cash flows from investing activities, that is why you must adjust net income by eliminating any gain or loss resulting from these transactions.
Explanation:
E.g. net income = $50,000, and it includes a gain of $5,000 resulting from the sale of a truck. The truck had a book value of $15,000, but was sold at $20,000.
Net cash flows from operating activities:
Net income $50,000
Adjustments to net income:
- Gain on sale of asset ($5,000)
Net cash flow provided by operating activities $45,000
Net cash flows from investing activities:
Sale of truck $20,000
Net cash flow provided by investing activities $20,000
According to the Security Risk Management: Building an Information Security Risk Management Program From the Ground Up textbook, "there will be risks that can't be mitigated at all, aren't worth the effort to reduce the exposure any further, or just won't be addressed in the short term due to other priorities" (p. 47). Provide a real-world example for each of these three scenarios and explain why the risk meets the criteria.
Answer with Explanation:
Risk which can’t be mitigated: The risks that the share price would fall due to sudden political environment instability or events that effects the economy will definitely affect the business operations as well. Thus are the risks that can not be mitigated at all. Another example would be Corona virus implications on the operation of the company which is again a risk that can't be mitigated.
Risks, that aren’t worth the effort to reduce the exposure any further:
The part of the sentence talks about the risk exposure which says that if the company doesn't resides in an area which is not prone to seismic activity and the chances of earthquake in a country is below 0.000001% which is almost negligible but still it is worthless to purchase the earthquake insurance. As this risk is almost negligible hence it is not worth the effort to reduce the exposure any further.
Risks that wouldn't be addressed in short term due to other priorities:
The risks that will not occur in the next 12 month, can be addressed after 6 months and thus allowing the company to prioritize the risks that must be resolved first. This means that if their is a risk that one of our several products that would be launched after 12 months from now will not be winning customer market can be addressed after 6 months because it is dependent on our future action. If we don't launch our product, our product is not rejected by the customer. Hence situations like this allows us to prioritize our risks.
The Discount on Bonds Payable account is: Multiple Choice A contra equity. A contra expense. A liability. A contra liability. An expense.
Answer:
Is a contra account to bonds payable
Explanation:
Cullumber Corporation had 312,000 shares of common stock outstanding on January 1, 2017. On May 1, Cullumber issued 29,700 shares.
(a) Compute the weighted-average number of shares outstanding if the 29,700 shares were issued for cash.
Weighted-average number of shares outstanding $
(b) Compute the weighted-average number of shares outstanding if the 29,700 shares were issued in a stock dividend.
Weighted-average number of shares outstanding $
Answer:
a. Issued for Cash = ($312,000 * 12/12) + ($29,700 * 8/12)
= $312,000 + $19,800
= $331,800
b. Issued in a stock dividend: Shares issued in the stock dividend are assumed outstanding from the beginning of the year
= ($312,000 * 12/12) + ($29,700 * 12/12)
= $312,000 + $29,700
= $341,700
The current spot exchange rate Singapore dollar against U.S. dollar (SGD/USD) is 0.6000. After considerable study, an investor concluded that the Singapore dollar will appreciate against the U.S. dollar in the coming 90 days, probably to about 0.7000. She has the following options on the Singapore dollar to choose from:
Option Strike price Premium
Put on SGD 0.6500 0.00003
Call on SGD 0.65 0.00046
1. Should the investor buy a put on Singapore dollars or a call on Singapore dollars?
2. What is the investor's break-even price on the option purchased in part a?
3. Using your answer from part a, what is the investor's gross profit and net profit (including premium) if the spot rate at the end of 90 days is indeed 0.7000?
4.Using your answer from part a, what is the investor's gross profit and net profit (including premium) if the spot rate at the end of 90 days is 0.8000?
Answer:
i) Investor should buy a call option as expected spot price on SGD after 90 days is 0.7 which less than the strike price 0.65 under call option.
II) Break-even price on option selected
Strike price under call option 0.65000
Add : Premium 0.00046
Break even price 0.65046
iii) Actual spot rate after 90 days 0.70000
Less: Strike price under call option 0.65000
Gross profit 0.05000
Less: Call option premium 0.00046
Net profit 0.04954
iv) Actual spot rate after 90 days 0.80000
Less: Strike price under call option 0.65000
Gross profit 0.15000
Less: Call option premium 0.00046
Net Profit 0.14954