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Study Resources (Statistics)

18.2   Short Answer Essay Questions 1) Give a very brief definition of conditional expected stock price. 2) In a lognormal model of stock price movement, describe the mean and variance of the continuously compounded returns. 3) What assumption is made in the Black-Scholes model concerning volatility? 4) Why might normally distributed returns appear non-normal? 5).
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B.1  End-of-Chapter Problems 1) The time value of money implies that a dollar in hand today is worth more than a dollar to be received in the future. 2) Discounting is the process by which interest on an investment accumulates, and then earns interest itself for the remainder of the investment.
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24.2   Short Answer Essay Questions 1) Explain the pattern of implied volatility that is often referred to as a smirk. (Use a call as your example.) 2) What is the one aspect of volatility that is assumed in the Black-Scholes model and why might that assumption be in error? 3) Why would an.
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26.1   Multiple Choice 1) Your portfolio is worth $200,000. The standard deviation of its annual returns is 0.20 and the expected return is 11.0%. What is the probability of a loss over 10 business days? A) 39.84% B) 49.84% C) 59.84% D) 69.84% 2) Your portfolio is worth $200,000. The standard deviation of its annual returns.
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22.2   Short Answer Essay Questions 1) What aspect of risk-neutral pricing valuation links it to portfolio selection? 2) How do asset values differ between using a traditional DCF approach and a stochastic discount factor approach? 3) How do probabilities change with a change of measure? 4) What does Girsanov's theorem tell us about drift.
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15.1   Multiple Choice 1) Mel, Inc. stock is $135.00 per share. The company's semi-annual dividend is forecasted as $2.10 per share, indefinitely. What is the price of a zero-coupon equity-linked bond, promising to pay one share in 3 years, given annual interest rates of 5.0%? A) $101.35 B) $110.26 C) $123.45 D) $155.22 2) Albert, Inc..
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11) Elemental standard time data can help managers develop time standards for new work before production begins. 12) The methods time measurement system is a predetermined data system. 13) The predetermined data approach eliminates the need for time studies. 14) A predetermined data approach to time standards can be completed.
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26.2   Short Answer Essay Questions 1) What is implied volatility? 2) Why is recent data more relevant than older data when calculating volatility? 3) What is bootstrapping and what is its use? 4) How is VaR used in credit risk scenarios? 5) What is a default swap and what is its use? .
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24.1   Multiple Choice 1) A stock has a historical volatility of 39%. The data shows significantly increased volatility in recent data and significantly lower volatility in older data. The implied estimate of the unconditional volatility using the GARCH model is most likely to be which of the following? A) 12% B) 25% C) 45% D).
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20.2   Short Answer Essay Questions 1) What are two important implications of assuming that prices follow a geometric Brownian motion? 2) Provide a definition of Brownian motion. 3) Define the term drift. 4) When considering drift and noise, how would you explain price movements over smaller and smaller time intervals? 5) What is the relationship.
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70) What assumptions are made when using break-even analysis? 71) Why should a decision maker engage in sensitivity analysis? 72) The site selection team you formed last quarter meets with you in the conference room to present the results of their thoughtful analysis. They have collectively logged 200,000 frequent flyer.
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22.1   Multiple Choice 1) For a utility function that exhibits decreasing martingale utility, the martingale utility is high when: A) Consumption and utility are low B) Consumption and utility are high C) Consumption is low and utility is high D) Consumption is high and utility is low 2) For a utility function that exhibits decreasing martingale.
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27.2   Short Answer Essay Questions 1) What are the two ways that the payoff conditional on default can be expressed? 2) What does a transition matrix indicate about a bond's future credit risk? 3) What is the recovery rate? 4) What is meant by the phrase "tranche" when referring to collateralized debt obligations? 5) What.
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21) Traditional work measurement techniques often are viewed as repressive. 22) Which of these drawbacks would be considered a hidden cost of work standards? A) Assigning tasks to workers and machines to utilize resources B) Increased conflict between labor and management C) Ability to compare alternative process designs D) Determination of.
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80) A manufacturing firm is considering an entirely new product that will require additional capital equipment, training, and an addition to their existing facility that will cost $50,000 per year. The projected retail price is $45 per unit, and the variable cost of production is $12.50. What is the break-even.
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A.1  End-of-Chapter Problems 1) The break-even point is the volume at which the total revenues equal total cost. 2) The variable cost is the portion of total cost that remains constant regardless of changes in levels of production. 3) Fixed cost is the portion of the total cost that remains constant.
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25.1   Multiple Choice 1) Zero-coupon bonds maturing in 1, 2, and 3 years have prices of 0.9345, 0.8766, and 0.8212, respectively. What is the forward price for a 1-year bond purchased in year 2? A) 0.6866 B) 0.7234 C) 0.8787 D) 0.9368 2) Bonds maturing in 1, 2, and 3 years have prices of 0.9345, 0.8766,.
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41) The decision rule most appropriate for the realistic manager using decision making under uncertainty would be A) maximin. B) maximax. C) Laplace. D) minimax regret. Table A.2 A company that is introducing a new product has to choose between three different manufacturing methods, referred to as methods A, B, and C..
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18.1   Multiple Choice 1) What is the area under the standard normal distribution curve and is less than 0.654? A) 0.5115 B) 0.6215 C) 0.7434 D) 0.8283 2) What is the probability that a number drawn from the standard normal distribution will be between -0.60 and 0.45? A) 0.40 B) 0.50 C) 0.60 D) 0.70 3) What is the probability that.
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16.2   Short Answer Essay Questions 1) How does a reload option provide additional compensation compared to regular compensation options? 2) Why does a company sell a put when issuing compensation options? 3) What feature of reload options prevents the use of a Black-Scholes valuation? 4) What three components exist in the value of an.
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21.2   Short Answer Essay Questions 1) Explain the relationship between strike prices and implied volatilities under a price jump scenario. 2) How does a dividend payment impact the option price? 3) Briefly define a terminal boundary condition. 4) Define a power option. 5) Give an example of currency translation that is a change in numeraire. .
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13.2   Short Answer Essay Questions 1) Describe the true relationship between option prices and delta. Use calls as an example. 2) The equation used by Black and Scholes to characterize the behavior of an option, expressed with Greeks, holds true for American options as well as European options with one exception. What.
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C.1  End-of-Chapter Problems 1) A work standard is the time required for a trained worker to perform a task following a prescribed method with normal effort and skill. 2) Work measurement is the process of creating labor standards based on the judgment of skilled observers. 3) A time study is the.
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14.2   Short Answer Essay Questions 1) Why might a down-and-in put option be more attractive than a standard option when hedging a foreign currency position? 2) When hedging a foreign currency position, what makes a down-and-out put unattractive? 3) Why is the premium on a standard option and down-and-in call the same when.
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17.2   Short Answer Essay Questions 1) What is the relationship, in general, between volatility and trigger prices, assuming constant costs? 2) Why is the perpetual call formula used to price commodity extraction options? 3) What is the main difference in pricing R & D options versus most other real options? 4) In the context.
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25.2   Short Answer Essay Questions 1) What is the transaction that results within an interest rate cap to make the holder's rate "capped"? 2) How does the node configuration in interest rates and bonds differ from stocks? 3) Describe the effectiveness of duration as a tool in hedging bonds. 4) Under what conditions does.
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17.1   Multiple Choice 1) Mead, Inc. may invest $20 million in a new fiber optic project. Due to market conditions, annual production costs and revenues are forecasted at $10 million and $8 million, respectively, starting next year. Revenues are expected to grow at 4.0% and interest rates are 6.0%. What is.
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27.1   Multiple Choice 1) The difference between the yield to maturity on a defaultable bond and an otherwise equivalent default-free bind is called the: A) Credit risk B) Credit spread C) Loss given default D) Recovery rate 2) The chance that a counter party may fail to meet a contractual obligation on a debt instrument is.
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21.1   Multiple Choice 1) What term is sometimes used to describe the price at a particular point in time, say maturity, that is necessary to calculate today's price? A) Face value B) Par value C) Boundary condition D) All of the above 2) What is the boundary condition for a European call option? A) Max [0,S(T)-K] B) Max.
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31) ________ is an allowance for the consumption of capital. 32) The ________ method of calculating annual depreciation is the simplest, and usually is adequate for internal planning purposes. 33) Since 1986, the only acceptable accelerated depreciation method is the ________. 34) The cash flow from the sale or disposal.
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15.2   Short Answer Essay Questions 1) For whom would the issue of an oil-linked debt instrument not be considered a risky issue? 2) Instead of issuing a pure commodity-linked debt, why would the commodity producing firm consider a combining interest plus participation in the commodity price appreciation? 3) What possible tax advantage exists.
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