1. Consider a wine dealer who has k bottles of wine. The dealer can sell them now (t = 0) or can store it for some time and then sell them later. The value of k bottles at t-th month is given by: Vt = ket The dealer can use the sales revenue as principal in a risk-free investment at rate r. (d) If the risk free rate is 5%, what is the optimal timing of sales?

1. Consider a wine dealer who has k bottles of wine. The dealer can sell them now (t = 0) or can store it for some time and then sell them later. The value of k bottles at t-th month is given by: Vt = ket The dealer can use the sales revenue as principal in a risk-free investment at rate r. (d) If the risk free rate is 5%, what is the optimal timing of sales?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

1. Consider a wine dealer who has k bottles of wine. The dealer can sell them now (t = 0) or can store it for some time and then sell them later. The value of k bottles at t-th month is given by: Vt = ket The dealer can use the sales revenue as principal in a risk-free investment at rate r. (b) Write out the present value PV, of k bottles at t-th month.
Find the amount needs to be invested if the investors want to receive an annual net income worth 5,400,000 for 7 years. Use the Hoskold's Formula to compute the priceif the money is worth 8% on sinking fund and the yield of interest is 5%. Price =
. A firm has $75,000 of cost of goods sold and $5,000 of accounts payable. Assume there are 365 days a year, the firm's payables deferral period (PDP) is 24.33 days. The firm's new CFO believes that the firm could delay the payments of accounts payable to increase its PDP (without affecting cost of goods sold) to 30 days. If this could be done, by how much cash would be freed up due to increase in accounts payable? 3. Which of the following statements is NOT correct? Question 13 options: In practice, most firms operate under conditions of capital rationing because they have more acceptable independent projects than they can fund. The before-tax cost of debt is used as the component cost of debt for purposes of developing the firm's weighted average cost of capital. The capital structure that minimizes a firm's weighted average cost of capital also maximizes its stock price. New common stock is typically the most expensive form of equity, followed by retained…
The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). (Round the final answers to 2 decimal places.) a. Suppose that today you buy an 9.2% annual coupon bond for $1,180. The bond has 19 years to maturity. What rate of return do you expect to earn on your investment? Expected rate of return % b-1. Two years from now, the YTM on your bond has declined by 1%, and you decide to sell. What price will your bond sell for? (Omit $ sign in your response.) Bond price $ b-2. What is the HPY on your investment? HPY %
An annuity-due has 26 payments of $200 per period. The effective rate of interest per period is 8% for the first 12 periods and 4% for the following 14 periods. (A) Find the accumulated value of the annuity using the portfolio method. Round your answer to 2 decimal places. (B) Find the accumulated value of the annuity using the yield-curve method.. Round your answer to 2 decimal places.
You are the manager of the Mighty Fine mutual fund. The following table reflects the activity of the fund during the last quarter. The fund started the quarter on January 1 with a balance of $100 million. Mighty Fine Mutual Pund Monthly Data (measured at end of month) February -4.3 6.20 March January 5.5 Net inflows ($ million) HPR () -4.30 1.80 Required: a. Calculate the quarterly arithmetic average return on the fund. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Arithmetic average 1.23 % b. Calculate the quarterly geometric (time-weighted) average return on the fund. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Geometric average 1.14 % c. Calculate the quarterly dollar-weighted average return on the fund. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Dollar-weighted average return
bond valuation An investor has two nonds in her portfolio, bond C and bond Z. each bond maturres in 4 years has a face value of 1000, and has a yield to maturity of 9.6% bond C pays a 10% annual coupon, while bond Z is a zeo coupon bond . b- assuming that the yield to maturity of each bond remains at9.6% over the next 4 years, calculate the price of the bonds at each of the following years to maturity year 4,3,2,1,0 b- plot the time path of price for each bond
2. An investor has a principal amount of $P. If he Interest Rate per Year desires a payout (return) of 0.1P each year, how many years will it take to deplete an account that earns 8% 4% 6% 8% 10% Payout per Year 10% (% of principal) 20% 30% 20.9 per year? 0.1P = P(A/P, 8%, N), so N ~= 21 years. A payout duration table can be constructed for select payout percentages and compound interest rates. Complete the following table. (Note: table entries are years.) Summarize your conclusions about the pattern observed in the table. (5.5)
Suppose a 5-year 5% bond is issued for $975.00 per bond. The market interest rates were higher than the coupon rate when the bond was sold. Will the annual interest be more or less than the interest paid? Group of answer choices More, because the bond was issued at a value less than par value Less Same More
A company has two independent investment opportunities. The initial capital occurs at the beginning of the first year. The company's required rate of return is 8 percent. The first option (A) requires an initial investment of 1500 million Fts with an expected life of 8 years. At the end of the 8th year company earns a yield of 4588.56 million Fts. The second option (B) requires an initial investment of 1400 million Fts with an expected life of 4 years. At the end of the 4th year company earns a yield of 2903.059 million Fts. The real profitability of the investments is between 5 and 25 percent. Calculate the Profitability Index of the project B! Give the result and choose the unit of the result. Answer:
At age 28 you invest P 25,000 into a mutual fund. If the fund averages a 7% annual return, your investment is worth how much at age 60? a. P 1, 266, 221 b. P 1, 448, 661 c. P 217, 882 d. P 190, 306
ou decided to go and apply for a credit card at your local financial institution.The Prime rate currently announced on June 1 was 3.25%. You have goodcredit history and a FICO score of 700. The lowest rate that they can offer toindividuals is a 18.99% APR for a credit card that gives cashback on purchasesand rewards. You were offered 21.99% APR for the credit card. How did thelender determine or calculate what rate they should offer you?