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3 years ago

Which of these is not a typical option for dealing with a risk?

1 answer:

6 0

Risk management is an on-going process, and is a combination of proactive management directed activities within a programme that are intended to accommodate the possibility of failures.

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A. calculate the payoff and profit at expiration for the february 190 calls, if you purchase the option at the stated price and

Darina [25.2K]

Answer:

(a) The Net Payoff: 6.75+5 = - 1.75 (b) Net payoff : 5

Note: Kindly find an attached image to the solution below

Sources: The image was researched from Course hero

Explanation:

Solution

Given that:

The call value goes higher when the underlying price increases and vice versa.

The premium value of put goes higher when underlying market decreases and vice versa.

The call value = Spot price - strike price (minimum zero)

The put value = Strike price - spot price (minimum zero

(1): Trade: Buy February Call

Now

The Strike Price: $ 190

The Call Premium paid: $ 6.75

The Stock Price on Expiry: $ 195

Value of call on expiry: $ 5

The Net Payoff: 6.75+5 = - 1.75

(2). Trade: Buy February Put

The Strike Price: $195

Put Premium: $ 5.00

Stock Price on Expiry = $ 195

Value of Put on Expiry: 0

Net payoff : 5

6 0

3 years ago

Which term describes the restoration of the insured person to the financial position he or she was in before the loss occurred?.

Ksivusya [100]

The term that describes the restoration of the insured person to the financial position that he or she was in before the loss occurred is called indemnity. This allows protection to the insurer in case of loss and damage and will protect against any legal quandry that may occur.

4 0

4 years ago

Read 2 more answers

Tally Corp. sells softwares during the recruiting seasons. During the current year, 11,000 softwares were sold resulting in $440

kramer

Answer:

Explanation:

Contribution margin is used to determine the profitability of a product. it is price less variable cost

Contribution margin = price - variable costs

Price = revenue / quantity sold

$440,000 / 11,000 = 40

Variable cost = total variable cost /output

$110,000 / 11,000 = 10

contribution margin = 40 - 10 = 30

3 0

3 years ago

Hughes Aircraft sold a four-passenger airplane for $380,000, accepting a 12% note for the purchase price. This transaction would

Semmy [17]

Answer:

a. Debit to Notes Receivable

Explanation:

Journal entry for selling an asset in return for notes receivable is;

Notes Receivable A/c Dr.

To Asset A/C

In the given case, an aircraft is sold in exchange for a note receivable. The journal entry would be:

12% Notes Receivable A/C Dr. $380,000

To Aircraft $380,000

(Being notes receivable received in exchange for aircraft sold being recorded)

Notes Receivable is an asset for the receiver as it represents amount which is due to be received. Whenever an asset account is debited, it increases their balance.

Aircraft is an asset. When an asset is sold, it is credited. Here the asset being a movable asset.

5 0

4 years ago

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $940,000,

Tanya [424]

Answer:

a. Year 0 Net Cash Flows = $984,000

b. We have:

Year 1 net operating cash flows = $306,159

Year 2 net operating cash flows = $332,986

Year 3 net operating cash flows = $261,479

c. Additional Year 3- cash flow = $504,877

d. The machine should be purchased.

Explanation:

We start by first calculating the following:

Initial Investment = Base Price + Modification Cost = $940,000 + $25,000 = $965,000

Useful Life = 3 years

Depreciation in Year 1 = 0.3333 * $965,000 = $321,634.50

Depreciation in Year 2 = 0.4445 * $965,000 = $428,942.50

Depreciation in Year 3 = 0.1481 * $965,000 = $142,916.50

Book Value at the end of Year 3 = $965,000 - $321,634.50 - $428,942.50 - $142,916.50 = $71,506.50

After-tax Salvage Value = Salvage Value - (Salvage Value - Book Value) * Marginal tax rate = $624,000 – ($624,000 - $71,506.50) * 25% = $485,877

Initial Investment in NWC = $19,000

We can now proceed as follows:

a. What is the Year 0 net cash flow?

Year 0 Net Cash Flows = Initial Investment + Initial Investment in NWC = $965,000 + $19,000 = $984,000

b. What are the net operating cash flows in Years 1, 2, 3?

Year 1 net operating cash flows = (Pretax Cost Saving * (1 - tax)) + (tax * Depreciation in year 1) = ($301,000 * (1 – 0.25)) + (0.25 * $321,634.50) = $306,159

Year 2 net operating cash flows = (Pretax Cost Saving * (1 - tax)) + (tax * Depreciation in year 2) = ($301,000 * (1 – 0.25)) + (0.25 * $428,942.50) = $332,986

Year 3 net operating cash flows = (Pretax Cost Saving * (1 - tax)) + (tax * Depreciation in year 3) = ($301,000 * (1 – 0.25)) + (0.25 * $142,916.50) = $261,479

c. What is the additional Year 3- cash flow (i.e. after tax salvage and the return of working capital)?

Additional Year 3- cash flow = NWC recovered + After-tax Salvage Value = $19,000 + $485,877 = $504,877

d. If the project's cost of capital is 12%, should the machine be purchased?

This can be determined from the net present value (NPV) calculated as follows:

NPV = -$984,000 + ($306,159/1.12^1) + ($332,986/1.12^2) + ($261,479/1.12^3) + ($504,877/1.12^3) = $100,287.71

Since the NPV of the machine of $100,287.71 is positive, the machine should be purchased.

7 0

3 years ago