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Mumz [18]
2 years ago
15

Assume stock A costs $100 at t = 0 in a two-period world. There are two scenarios at t = 1: good and bad. In the good scenario t

he stock price rises to 120 dollars and in the bad scenario stock price declines to 70. The probability of both these scenarios is p = 0.5. The annual riskless rate is 10%. Your broker offers you a call option with strike price of $110 for $4.60. Will you take up his offer? Why or why not?
Business
1 answer:
Arada [10]2 years ago
3 0

Answer:

The offer at $4.60 by the broker is higher than the calculated fair value of $4.545 hence i will not take up his offer

Explanation:

Given data:

stock A = $100 at  t = 0  

in two worlds : good scenario ; stock A  = $120

                         bad scenario ; stock A = $70

probability = 0.5

annual risk less rate = 10% = 0.1

To determine if to take the offer or not we have to calculate the call option using the given parameters

Cu = \frac{(0.5*10) + (0.5*0)}{(1 + 0.10)}  = $4.545

The offer at $4.60 by the broker is higher than the calculated fair value of $4.545 hence i will not take up his offer

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The new price level after the increase in the money supply is 3.3. Therefore, the percentage increase in the money supply is 10%. The percentage change in the price level is 10%. Percentage change in the money supply is the same as the percentage change in the price level.
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3 years ago
Gillie, Taft, and Dall are partners in an accounting firm. The partnership agreement is silent about the payment of salaries and
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Answer:

Explanation:

The partnership agreement is silent about the payment of salaries and the division of profits and losses.

Profits should be divided based on capital invested by each

The capital investment by Gillie, Taft and Dall is 60000 : 120000 : 60000 Distribution has to be in ratio of 1:2:1

Total profits are 120,000, 1:2:1 ratio

The distribution will be Gillie $30,000, Taft $60,000 and Dall $30,000.

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2 years ago
Read 2 more answers
In January of 2018, the Phillips Company purchased a patent at a cost of $100,000. In addition, $10,000 in legal fees were paid
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Answer:

The answer is: $113,000

Explanation:

By 2020, Phillips Company had already amortized $22,000 of the patent expenses (2 years x [10% x ($100,000 + $10,000)]). Since it lost its patent defense in 2020, it will now have to write off $113,000 ($88,000 pending amortization + $25,000 in legal fees) for the adjustment of its 2018 income.

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3 years ago
Manta Ray Company manufactures diving masks with a variable cost of $31. The masks sell for $40. Budgeted fixed manufacturing ov
riadik2000 [5.3K]

Answer:

When there is no change in the beginning and ending units of inventory i.e the  units sold are equal to the units produced,the income under variable and absorption costing remains the same which is the condition in the given question.

Explanation:

If we have 80,000 units produced and sold then the income under both methods will be the same.

Manta Ray Company

Income Statement Variable Costing

Sales                $40*80,000=  $ 3200,000

Variable Costs $ 31*80,000=  $ 2480,000

Contribution Margin  $ 720,000

Less Fixed Costs $  $712,800

Gross Profit $ 7200

Manta Ray Company

Income Statement Absorption Costing

Sales                $40*80,000=  $ 3200,000

Variable Costs $ 31*80,000=  $ 2480,000

Fixed Costs $  $712,800

Gross Profit $ 7200

When there is no change in the beginning and ending units of inventory i.e the  units sold are equal to the units produced,the income under variable and absorption costing remains the same which is the condition in the given question.

If there is an increase in the inventory units ( ie. production is less than the Sales) the fixed manufacturing overhead cost is released from inventory and deducted from variable income.

Similarly when the inventory units decrease  ( ie. production is more than the Sales)  the fixed manufacturing overhead cost is deferred from inventory and added to variable income.

8 0
3 years ago
At May 1, 2020, Sheridan Company had beginning inventory consisting of 190 units with a unit cost of $7.30. During May, the comp
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Answer:

$6.71 per unit

Explanation:

The computation of average cost method is given below:-

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Purchases

= 720 units × $7.30

= $5,256

Purchases

= 590 units × $5.80

= 3,422

Total units = 1,500

Total cost = $10,065

So, average cost per unit

Total cost ÷ Total number of units

= $10,065 ÷ 1,500

= $6.71 per unit

Therefore, to calculate the average cost per unit for May we simply divide 10,065 from 1,500

7 0
3 years ago
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