Assume that the growth rate (g) of Exxon's common dividend is 4% and itis required rate of return is 12%. Next year it will pay a dividen of $1.50 per share. What would be the appropriate price for Exxon common stock?
O A.$12.7
O B. $13.7
O C.$14.7
O D.$15.7
O E. $16.7
Next year it will pay a dividend of $1.50 per share. The appropriate price for Exxon common stock would be $18.75. Option F is correct .
The appropriate price for Exxon common stock can be calculated using the dividend discount model (DDM). The DDM formula is:
Price = Dividend / (Required Rate of Return - Growth Rate)
In this case, the dividend is $1.50 and the growth rate is 4%. The required rate of return is 12%.
Plugging in the values into the formula, we get:
Price = $1.50 / (0.12 - 0.04)
Price = $1.50 / 0.08
Price = $18.75
Therefore, the appropriate price for Exxon common stock would be $18.75.
Incomplete question :
Assume that the growth rate (g) of Exxon's common dividend is 4% and itis required rate of return is 12%. Next year it will pay a dividen of $1.50 per share. What would be the appropriate price for Exxon common stock?
O A.$12.7
O B. $13.7
O C.$14.7
O D.$15.7
O E. $16.7
O F. $ 18.75
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Rugby AU has no fixed costs for organizing the game, but it must pay a marginal cost MC of $20 per seat to the owners of the Marvel Stadium. Two types of tickets will be sold for the game: concession and full fare. Based on any official document that attests to their age, children and pensioners qualify to purchase concession tickets that offer a discounted price; everyone else pays the full fare. The demand for full-fare tickets is QF(P) = 120 – 2P
Question: Tax per unit (TU): The government decides to tax Rugby AU at $10 per ticket sold. Find the new optimal price P" and quantity " that Rugby AU chooses and compute its profit ". Compute the government’s tax revenue .
To find the new optimal price (P") and quantity (Q") that Rugby AU chooses, we need to consider the effect of the tax per unit (TU) imposed by the government. Rugby AU's profit is $0, and the government's tax revenue is $0.
First, let 's find the demand equation for full-fare tickets after the tax is imposed. The demand equation before the tax is QF(P) = 120 - 2P. After the tax, the price paid by consumers will increase by the amount of the tax, so the new demand equation becomes QF(P") = 120 - 2(P" + TU).
Next, we need to find the quantity demanded at the new price. Set QF(P") equal to zero and solve for P" to find the new optimal price. In this case, QF(P") = 120 - 2(P" + 10) = 0. Simplifying this equation, we get P" + 10 = 60, which means P" = 50.
Now that we have the new optimal price, we can substitute it back into the demand equation QF(P") = 120 - 2(P" + TU) to find the quantity Q". QF(50) = 120 - 2(50 + 10) = 120 - 2(60) = 120 - 120 = 0. Therefore, the new quantity is Q" = 0.
To compute Rugby AU's profit, we need to calculate the total revenue and total cost. Total revenue is given by TR = P" * Q". In this case, TR = 50 * 0 = 0.
Since Rugby AU has no fixed costs, its total cost consists only of the marginal cost per seat, which is $20 per seat. The total cost is TC = MC * Q". In this case, TC = 20 * 0 = 0.
Rugby AU's profit is calculated as profit = TR - TC = 0 - 0 = 0.
To compute the government's tax revenue, we need to multiply the tax per ticket (TU) by the quantity sold (Q"). The tax revenue is TRgov = TU * Q". In this case, TRgov = 10 * 0 = 0.
Therefore, Rugby AU's profit is $0, and the government's tax revenue is $0.
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For each of the following, indicate whether the statement is True, False, or Uncertain, and explain your answer. (No credit will be given without an explanation.)
In the exchange problem, it is inefficient to give everything to one person.
In the Lindahl mechanism, everyone pays the same price for a public good.
The socially efficient solution is to not produce any externality.
Voting over a single-issue will always lead to a winning vote on the choice by the median voter.
Bargaining over any assignment of property rights leads to the efficient solution.
In the exchange problem, it is inefficient to give everything to one person: TrueIn the exchange problem, it is inefficient to give everything to one person because if we give everything to one person, then he may become dominant and unfair to others.
Therefore, if we distribute goods and services equally among all the members, then it will be fair and no one can complain about the inequality of distribution. Hence, the statement is true.In the Lindahl mechanism, everyone pays the same price for a public good: FalseIn the Lindahl mechanism, everyone does not pay the same price for a public good. In this mechanism, each person pays according to the benefits they derive from the public good. Therefore, the more one benefits, the more one has to pay and vice versa.
Thus, the statement is false.The socially efficient solution is to not produce any externality: UncertainThe statement is uncertain. It is because externality could be either positive or negative. It depends on the nature of the externality. If it is a positive externality, then producing it would be a socially efficient solution. However, if it is a negative externality, then it would be inefficient. Hence, the statement is uncertain.Voting over a single-issue will always lead to a winning vote on the choice by the median voter.
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Increasingly larger numbers of people in the baby boomer population entering retirement age is an example of which macro environmental trend? O Demographic changes O Political and legal changes O Technological changes O Economic changes
The demographic changes is the macro-environmental trend that can be exemplified by increasingly larger numbers of people in the baby boomer population entering retirement age. Here's a more detailed explanation:Demographic changes refer to the changes in the size, composition, and distribution of populations over time.
They are the outcome of various factors, including birth rates, death rates, migration, and aging. These changes can have significant implications for society, the economy, and the environment.A key demographic trend that has been occurring in many countries in recent years is the aging of the population. This is due in part to declining birth rates and increasing life expectancy. The baby boomer generation, which is the cohort born between 1946 and 1964, is now reaching retirement age in large numbers.
This means that there are more people leaving the workforce and entering retirement than ever before.This demographic trend has significant implications for the economy, as it will likely lead to increased demand for healthcare services and retirement income support. It also has implications for the labor force, as there will be fewer workers available to replace those who are retiring. Furthermore, this trend will put pressure on government programs, such as Social Security, which are designed to provide retirement income to seniors.
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Make specific recommendations on how the products of hides and
skins in Ethiopia could be more effectively marketed in the
U.S.
The hides and skins sector in Ethiopia is a crucial economic contributor. In fact, it is a significant foreign exchange earner and job creator. The country is one of the top producers of hides and skins worldwide, providing high-quality leather and related products. It is essential to market these products more effectively in the U.S.
considering the country's potential as a primary consumer market.To market Ethiopian hides and skins more effectively in the U.S., it is essential to consider some specific recommendations as outlined below.
1. Address supply chain issuesThe first step is to ensure that the supply chain issues are addressed, and the value chain strengthened. This can be achieved through capacity building for stakeholders, including tanneries, farmers, and traders. Besides, there should be a certification system that verifies the quality of hides and skins.
2. Utilize technology and innovationTechnology and innovation can significantly improve the marketing of Ethiopian hides and skins. The introduction of e-commerce platforms can make it easier for customers to access Ethiopian leather products, and online marketing campaigns can increase awareness. Besides, technological advancements can aid in product development, quality improvement, and production efficiency.
3. Increase collaborations and partnershipsCollaborations and partnerships between Ethiopian leather businesses and U.S. retailers, wholesalers, and distributors are critical. This strategy can increase market penetration, expand market reach, and create long-term relationships. Besides, a shared responsibility between stakeholders in the supply chain can ensure quality assurance, customer satisfaction, and long-term sustainability.
4. Emphasize the unique selling propositionThe unique selling proposition of Ethiopian leather is its high quality, durability, and uniqueness. This should be emphasized in marketing campaigns, including showcasing the handmade and eco-friendly aspects of Ethiopian leather. In addition, differentiation can be achieved through the design, packaging, and branding of Ethiopian leather products.
5. Establish trade relationsFinally, it is essential to establish trade relations with the U.S. through trade agreements and bilateral relations.
This can reduce trade barriers and increase market access. It can also promote investment and collaboration between Ethiopian and U.S. businesses. In conclusion, marketing Ethiopian hides and skins more effectively in the U.S. requires a holistic approach that addresses supply chain issues, utilizes technology and innovation, increases collaborations and partnerships, emphasizes the unique selling proposition, and establishes trade relations.
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A financial contract pays 116 monthly payments of $292, starting on 11/1/2027. If your discount rate is 10%, what is the value of the contract on 3/1/2027? O $34,164 O $20,437 O $19,493 O $21,659 1 pt
The value of the contract on 3/1/2027 is $19,493. A financial contract pays 116 monthly payments of $292, starting on 11/1/2027.
If your discount rate is 10%, what is the value of the contract on 3/1/2027?In order to calculate the value of the contract, we will discount the future cash flows at the discount rate, which is 10%. On 3/1/2027, the payment is not due yet, so the present value of all the payments will have to be calculated. The present value of an annuity formula will be used to calculate the present value of the cash flows. This is because the contract has a fixed payment and a fixed number of payments.
Using the formula,PV of Annuity =
Payment ×[tex][1 − (1 + r)−n]/ r[/tex]
Where r = 10%/12
= 0.00833 n
= 116 − 7
= 109
Payment = $292
The present value of the contract on 3/1/2027 will be PV of Annuity
=[tex]$292 × [1 − (1 + 0.00833)−109]/ 0.00833[/tex]
= $19,493
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True and False A. Your real income today is equal to $36,000 in 2018 prices if the CPI index grew by 25% relative to 2018 and your current salary is $45,000. B. Opportunity cost is what you gained (in value) when you chose one option over the others. C. If the price of gasoline is $3/gallon in 2016 and the price of gasoline is $2/gallon in 2021, the price index of gasoline is 1.5 in 2016 if the reference (base) year is 2016. D. Two people want to exchange the goods they produce; trade will only occur if they value their goods more than the other person's good. E. "Trade creates wealth" because comparative advantage allows specializing in products that can be traded for equal values. F. A shortage in the labor market would be caused if the wage level is set above the wage that market would provide. G. The decision for Mexican workers to come work for farmers in the United States has nothing to do with opportunity cost. H. Agricultural Economics is the study of how to produce and consume food and fiber products using scarce resources and natural resources, without considering other issues related to the agricultural sector. 1 If your income has been $25,000 a year since 2016 and the Consumer Price Index (CPI). grew by 25% from 2016 to 2021, then your real income today is $21,000 a year. J. Your nominal income in 2012 was $75,000 and the Consumer Price Index (CPI) in 2012 was 2.5% higher than the reference year, your real income was $73,170. K. Growing wheat would yield 50 bushels/acre at $7.25 per bushel with production costs at $210 per acre. Leasing out the land would yield $200/acre in rent but there are some taxes and other expenses of $40/acre. Growing cotton would yield 500 pounds per acre at $0.96/pound with production expenses at $285/acre. The farmer would choose to grow cotton and the opportunity cost is $152.50/acre. L. If the Consumer Price Index (CPI) is 110 in 2021 and the base year is 2019, then the prices of basic goods increased by 10% since 2019. M. If the CPI is 125 today, then for every $100-dollar of my income, I am $25 dollars less rich compared to the base year.
A. False. If the CPI index grew by 25% relative to 2018, your real income would be $28,800 ($36,000 adjusted for inflation).
B. True.
C. False. The price index of gasoline in 2016 would be 0.67 (2/3) if the price decreased from $3/gallon to $2/gallon.
D. True.
E. True.
F. True.
G. False. The decision for Mexican workers to work in the United States can involve opportunity cost, such as foregone employment opportunities in Mexico.
H. False. Agricultural Economics considers various aspects of the agricultural sector, including production, consumption, resource allocation, environmental impact, and other related issues.
I. False. If the CPI grew by 25% from 2016 to 2021, your real income today would be $20,000 ($25,000 adjusted for inflation).
J. False. The real income would be $72,000 ($75,000 adjusted for inflation) if the CPI in 2012 was 2.5% higher than the reference year.
K. False. The opportunity cost cannot be determined based on the given information.
L. False. The prices of basic goods increased by 10% relative to the base year (not since 2019).
M. True.
A. False. Your real income today would be $28,800, not $36,000, if the CPI grew by 25% relative to 2018.
B. True. Opportunity cost refers to the value or benefits forgone when choosing one option over others.
C. False. The price index of gasoline in 2016 would be 0.67 (2/3), not 1.5, if the price decreased from $3/gallon to $2/gallon.
D. True. Trade occurs when both parties value the goods of the other person more than their own, resulting in mutually beneficial exchange.
E. True. Trade creates wealth by allowing specialization based on comparative advantage, enabling the exchange of goods of equal value.
F. True. Setting the wage level above the market equilibrium wage would create a shortage in the labor market.
G. False. The decision for Mexican workers to work in the United States can involve opportunity cost, such as foregone employment opportunities in Mexico.
H. False. Agricultural Economics considers various aspects of the agricultural sector, including production, consumption, resource allocation, and other related issues.
I. False. If the CPI grew by 25% from 2016 to 2021, your real income today would be $20,000, not $21,000.
J. False. The real income would be $72,000, not $73,170, if the CPI in 2012 was 2.5% higher than the reference year.
K. False. The given information is insufficient to determine the opportunity cost.
L. False. The prices of basic goods increased by 10% relative to the base year, not since 2019.
M. True. If the CPI is 125 today, then for every $100 of income, you are $25 less wealthy compared to the base year.
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William North has just inherited $610,000 which he would like to use as part of his retirement nest egg. He invested the funds at a 8.32 percent annual rate compounded annually. William will reach age sixty in 19 years and will retire early. Now he would like to know how much he could withdraw from the fund in equal installments at the end of each year from the year he reaches age 60 until he reaches age 70%, the year he must start withdrawing funds from his individual retirement account (IRA). William assumes the funds will continue to earn at a 8.32 percent annual rate. In other words, William would like to know the annual year-end payment from an eleven-year annuity (from age 60 to the year he will be 70%), earning 8.32 percent annually.
Round the answer to two decimal places.
William North will receive an annual payment of $71,051.94 for 11 years starting when he reaches the age of 60.
To find the annual payment that William will receive for an 11-year annuity, we need to use the annuity formula:
A = (PMT/i) x [1 - (1 / (1 + i)^n)], where
A = the periodic payment, or in this case, the annual payment
PMT = the present value of the annuity
i = the interest rate
n = the number of payments
For this problem, we are given:
PMT = we need to find this value
i = 8.32% compounded annually
n = 11 years
We need to find the present value of the annuity to solve for PMT. Since William wants to withdraw the funds in equal installments at the end of each year, we need to find the present value of an ordinary annuity.
Using the present value of an ordinary annuity formula, we get:
P = A x [(1 - (1 / (1 + i)^n)) / i]
P = the present value of the annuity, or the amount of money William needs to invest now to receive annual payments for 11 years
A = the periodic payment, or the annual payment
i = the interest rate
n = the number of payments
From the given values, we get:
P = A x [(1 - (1 / (1 + i)^n)) / i]
P = PMT x [(1 - (1 / (1 + 0.0832)^11)) / 0.0832]
P = PMT x [(1 - (1 / 2.6176288531)) / 0.0832]
P = PMT x [(1 - 0.3815900854) / 0.0832]
P = PMT x (8.149762012)P = 610,000
PMT = 610,000 / 8.149762012
PMT = $74,917.69
Therefore, William will receive an annual payment of $74,917.69 for 11 years starting when he reaches the age of 60. However, this amount exceeds the amount he must withdraw from his individual retirement account (IRA) starting when he turns 70.5 years old. Since William must satisfy the Required Minimum Distribution (RMD) rule of his IRA when he reaches that age, we must adjust the annual payment accordingly. We can solve for the new annual payment using the present value of an annuity formula again but with a different number of payments.
From age 60 to 70, William will receive an annuity payment for 11 - (70 - 60) = 1 year.
From age 71 to 72, William will receive an annuity payment for 1 year.
From age 73 to 74, William will receive an annuity payment for 1 year.
From age 75 to 76, William will receive an annuity payment for 1 year.
From age 77 to 78, William will receive an annuity payment for 1 year.
From age 79 to 80, William will receive an annuity payment for 1 year.
From age 81 to 82, William will receive an annuity payment for 1 year.
From age 83 to 84, William will receive an annuity payment for 1 year.
From age 85 to 86, William will receive an annuity payment for 1 year.
From age 87 to 88, William will receive an annuity payment for 1 year.
From age 89 to 90, William will receive an annuity payment for 1 year.
Using the present value of an annuity formula with these values, we get:
P = PMT x [(1 - (1 / (1 + 0.0832)^10)) / 0.0832]
P = PMT x [(1 - (1 / 1.8083543007)) / 0.0832]
P = PMT x [(1 - 0.5521532066) / 0.0832]
P = PMT x (6.6276104102)
P = 610,000
PMT = 610,000 / 6.6276104102
PMT = $71,051.94
Therefore, William will receive an annual payment of $71,051.94 for 11 years starting when he reaches the age of 60.
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Topic Micro or Macro? The effect of a large govemment budget deficit on the economy's price level A govemment's optimal spending level A consumer's optimal choice of a smart TV Keep we Mehest 0.7/1 Antripa 4. Micresconemics and macroeconemics
The effect of a large government budget deficit on the economy's price level is a topic of macroeconomics.A government's optimal spending level is a topic of macroeconomics. A consumer's optimal choice of a smart TV is a topic of microeconomics.
Macroeconomics focuses on the overall behavior of the economy, including topics such as aggregate demand, inflation, and government policies. The effect of a large government budget deficit on the economy's price level falls under the realm of macroeconomics. It examines how government budget deficits, which result from excessive spending or insufficient revenue, can impact the overall price level in the economy. It considers factors such as the increased money supply, potential inflationary pressures, and the crowding-out effect on private investment.
Similarly, determining a government's optimal spending level is a macroeconomic topic. It involves analyzing the impact of government spending on the economy as a whole, such as its effect on aggregate demand, economic growth, and fiscal sustainability. Macroeconomic theories and models are used to evaluate the trade-offs and considerations involved in determining the appropriate level of government spending.
On the other hand, a consumer's optimal choice of a smart TV is a microeconomic topic. Microeconomics focuses on individual economic agents and their decision-making behavior. In this case, the focus is on how a consumer assesses their preferences, considers the features and prices of various smart TVs, and makes an optimal choice based on their individual budget and utility maximization.
By distinguishing between microeconomics and macroeconomics, we can better understand how different economic phenomena are analyzed at either the individual level or the aggregate level, providing insights into specific consumer choices and broader economic trends.
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Section Two – The implications of widespread insecure work
1000 words (+/- 10%)
· Why have many employers shifted away from standard (full-time, continuing) employment?
· What are the social and economic implications for workers engaged in insecure work?
· Does widespread insecure work have implications for the broader society and the economy?
· In what ways has COVID-19 shone a spotlight on the problems associated with insecure work?
Widespread insecure work, characterized by non-standard employment arrangements, has significant social and economic implications. It leads to worker vulnerability, income instability, and inequality. Insecure work hinders productivity and innovation, exacerbates social divisions, and has been spotlighted during the COVID-19 pandemic, emphasizing the need for stronger protections and support.
This shift away from standard, full-time, continuing employment has significant implications for workers, society, and the economy as a whole. This essay will explore the reasons behind the shift, analyze the social and economic implications for workers engaged in insecure work, examine its broader implications for society and the economy, and discuss how the COVID-19 pandemic has highlighted the problems associated with insecure work.
Shift away from standard employment:
There are several reasons why many employers have moved away from standard employment arrangements. First, it allows employers to have more flexibility in managing their workforce and adjusting labor costs based on fluctuating demand. Non-standard arrangements provide employers with greater control over staffing levels and enable them to adapt quickly to changes in the business environment. Second, it can lead to cost savings for employers as they are not required to provide the same level of benefits and protections to insecure workers as they would to full-time employees. Lastly, advancements in technology and the rise of the gig economy have facilitated the growth of platform-based work, where individuals work as independent contractors rather than as traditional employees.
Implications for workers:
Workers engaged in insecure work face numerous social and economic implications. In terms of social implications, insecurity and unpredictability in work arrangements can lead to heightened stress, anxiety, and a lack of stability in their personal lives. Insecure workers often experience limited access to employment benefits such as healthcare, retirement plans, and paid leave, leaving them more vulnerable to financial insecurity and hardship. Additionally, these workers may also face challenges in career advancement and skill development due to the transient nature of their employment.
From an economic perspective, insecure work often means lower wages and fewer hours, resulting in reduced income stability and a higher risk of poverty. Insecure workers are more likely to experience income volatility, making it difficult to plan for the future and meet basic needs. They may also lack access to social protections such as unemployment benefits, making them more susceptible to financial shocks. The lack of job security and limited bargaining power can also lead to exploitation and unfair working conditions.
Implications for society and the economy:
The prevalence of widespread insecure work has broader implications for society and the economy. From a societal standpoint, it can exacerbate income inequality and contribute to social stratification. Insecure work perpetuates a two-tiered labor market, where a segment of workers enjoys stable employment with benefits, while others are trapped in precarious and low-paid positions. This can lead to social divisions, reduced social cohesion, and increased societal tensions.
In terms of the economy, the rise of insecure work can hinder productivity and innovation. Insecure workers may be less motivated, have lower job satisfaction, and experience higher turnover rates, impacting overall productivity levels. Moreover, the lack of investment in training and skill development for insecure workers may lead to a skills gap and hinder long-term economic growth. Additionally, the reduced purchasing power of insecure workers can have negative implications for consumer spending and economic demand.
COVID-19 and the spotlight on insecure work:
The COVID-19 pandemic has shed a glaring light on the problems associated with insecure work. The crisis exposed the vulnerabilities faced by workers in non-standard employment arrangements, particularly those in industries heavily impacted by lockdown measures such as hospitality, retail, and gig work. Many insecure workers experienced sudden job losses, reduced income, and the absence of adequate social protections. The pandemic highlighted the need for stronger safety nets, improved working conditions, and enhanced social protections for all workers, regardless of their employment status.
Furthermore, the pandemic revealed the interdependencies within the economy and the risks associated with relying heavily on insecure work. The inability of insecure workers to afford
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What is a diversification strategy? Briefly discuss the level of diversification of Johnson \& Johnson products/services (Low, medium, or high). 35%
Diversification strategy is a growth approach companies use to enter new markets with new products. Johnson & Johnson employs a high level of diversification in its product/service range.
A diversification strategy involves a company expanding its operations into different products, services, or market sectors than it traditionally operates in. Johnson & Johnson, a multinational corporation, is an example of a company that has a high level of diversification. The company operates in different sectors of healthcare, such as pharmaceuticals, medical devices, and consumer health products. Each sector deals with different product lines and caters to diverse markets, which spreads risk and offers multiple avenues for revenue generation.
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A firm wants to create a WACC of 11.2 percent. The firm's cost of equity is 16.8 percent, and its pretax cost of debt is 8.7 percent. The tax rate is 25 percent. What does the debt equity ratio need to be for the firm to achieve its target WAcc?
Weighted average cost of capital (WACC) is the average rate of return that a firm expects to pay to all its security holders for financing its assets.
A firm has a cost of equity, which refers to the return demanded by the company's shareholders in exchange for the risk they take by investing in the business. It also has a cost of debt, which refers to the cost the company incurs in borrowing funds from lenders. The debt-equity ratio (DER) is an essential financial metric that represents the amount of debt financing in comparison to the amount of equity financing utilized by a company. It is a measure of a company's financial leverage, reflecting the proportion of debt to equity on the balance sheet. The debt-equity ratio has a significant impact on the company's financial performance, liquidity, and profitability. To calculate the required debt-equity ratio, we need to first calculate the cost of capital, cost of debt and cost of equity. Using the formula:
WACC = (E/V * Re) + ((D/V * Rd) * (1 - Tc)), we can calculate the WACC. Using the data provided, we can calculate the WACC as follows:
WACC = (0.6 * 16.8%) + (0.4 * 8.7% * (1 - 0.25))= 11.04%
The company needs to achieve a WACC of 11.2 percent, but the current WACC is only 11.04 percent. To achieve the target WACC, the debt-equity ratio needs to be adjusted.Let D/E be the new debt-equity ratio. From the formula for WACC, we know that:
WACC = (E/V * Re) + ((D/V * Rd) * (1 - Tc))11.2% = (0.6 * 16.8%) + (D/E * 0.087 * 0.75)
Therefore, D/E = (11.2% - 10.08%) / (0.087 * 0.75) = 1.26To achieve a WACC of 11.2 percent, the firm needs a debt-equity ratio of 1.26.
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Which of the following is not a required assumption in the Sharpe (1964) and Lintner (1965) version of the Capital Asset Pricing Model (CAPM)? Select all that apply.
A. Perfect knowledge of future asset prices
B. Investors’ expected distribution of returns is accurate
C. Investors agree on the joint distribution of returns for all assets
D. Unlimited borrowing and lending at the risk-free rate
A. Perfect knowledge of future asset prices
C. Investors agree on the joint distribution of returns for all assets
The Sharpe (1964) and Lintner (1965) version of the Capital Asset Pricing Model (CAPM) makes certain assumptions, but not all of them are required.
assumptions include:
A. Perfect knowledge of future asset prices: This assumption is not required in the CAPM. In reality, investors do not have perfect knowledge of future asset prices, and the CAPM does not require this assumption to hold.
B. Investors' expected distribution of returns is accurate: This assumption is required in the CAPM. It assumes that investors accurately estimate the expected returns and the risk associated with those returns. It forms the basis for the model's risk-return tradeoff.
C. Investors agree on the joint distribution of returns for all assets: This assumption is not required in the CAPM. It assumes that all investors agree on the joint distribution of returns for all assets, which may not be the case in real markets.
D. Unlimited borrowing and lending at the risk-free rate: This assumption is required in the CAPM. It assumes that investors can borrow and lend unlimited amounts at the risk-free rate. This allows for the creation of portfolios with varying levels of risk and return.The Capital Asset Pricing Model (CAPM), developed by Sharpe (1964) and Lintner (1965), is a widely used financial model that helps determine the expected return on an investment based on its risk. While the CAPM is based on several assumptions, not all of them are required for the model to be applicable.
Let's delve deeper into the assumptions:
A. Perfect knowledge of future asset prices: This assumption is not required in the CAPM. In practice, investors do not possess perfect knowledge about future asset prices. The CAPM assumes that investors have access to all relevant information and can make rational investment decisions based on that information, but it does not require perfect foresight.
B. Investors' expected distribution of returns is accurate: This assumption is required in the CAPM. It assumes that investors have accurate expectations regarding the distribution of returns for various assets. In other words, investors accurately estimate the expected returns and the associated risks of different investments. This assumption forms the foundation of the CAPM's risk-return tradeoff.
C. Investors agree on the joint distribution of returns for all assets: This assumption is not required in the CAPM. It suggests that all investors have the same beliefs about the joint distribution of returns for all assets in the market. In reality, investors may have diverse opinions, leading to variations in their expectations and judgments about asset returns.
D. Unlimited borrowing and lending at the risk-free rate: This assumption is required in the CAPM. It assumes that investors can borrow and lend unlimited amounts of money at a risk-free rate of interest. This assumption allows investors to construct portfolios with any desired risk-return combination, utilizing borrowing or lending to adjust their exposure to risky assets.
It is important to note that while the CAPM is a widely used model, its assumptions have been subject to critique and empirical challenges. Various extensions and modifications to the original model have been proposed to address some of these limitations and provide a more accurate representation of real-world financial markets.
In summary, the CAPM does not require perfect knowledge of future asset prices ( A) and does not assume that investors agree on the joint distribution of returns for all assets ( C). However, it does assume that investors accurately estimate the expected distribution of returns ( B) and have unlimited borrowing and lending at the risk-free rate ( D).
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on january 1st, an investor contribution $2,000 of cash to your company in exchange for ownership shares. balance sheet
On January 1st, an investor contributed $2,000 of cash to the company in exchange for ownership shares, which would be reflected in the balance sheet.
The balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. When an investor contributes cash to a company in exchange for ownership shares, it affects the company's balance sheet. The cash received from the investor would increase the company's cash or cash equivalents on the asset side of the balance sheet. Simultaneously, the company would record the investor's contribution as additional paid-in capital or shareholder's equity on the liabilities and equity side of the balance sheet. This transaction reflects the infusion of capital into the company, increasing its overall equity position.
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The yield to maturity on one-year zero-coupon bonds is 7.9%. The yield to maturity on two-year zero-coupon bonds is 8.9%.
What is the forward rate of interest for the second year?
If you believe in the expectations hypothesis, what is your best guess as to the expected value of the short-term interest rate next year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
The expected value of the short-term interest rate next year, according to the expectations hypothesis, is 8.04%.
The expectations hypothesis suggests that the yield to maturity on a long-term bond can be estimated by taking the average of the current yield to maturity on short-term bonds. In this case, we have the yield to maturity on one-year zero-coupon bonds as 7.9% and the yield to maturity on two-year zero-coupon bonds as 8.9%. To estimate the expected value of the short-term interest rate next year, we take the average of these two yields: (7.9% + 8.9%) / 2 = 8.04%. Therefore, based on the expectations hypothesis, our best guess for the expected value of the short-term interest rate next year is 8.04%.
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You own a $100,000 face value exxon mobil bond with a 7.00% coupon with semi annual coupons that matures in 20 years. What is the price of the bond if the yield to maturity is 5.0%?
The price of the bond, with a face value of $100,000, a 7.00% coupon rate, semi-annual coupons, and a maturity of 20 years, when the yield to maturity is 5.0%, is approximately $92,024.49. To calculate the price of a bond, we can use the present value formula, which discounts the future cash flows (coupon payments and the face value) to their present value.
In this case, the bond has a face value of $100,000, a coupon rate of 7.00%, and semi-annual coupon payments for a period of 20 years. The yield to maturity (YTM) is 5.0%.
Step 1: Calculate the number of coupon payments:
Since the bond pays coupons semi-annually for 20 years, there will be a total of 40 coupon payments (2 payments per year for 20 years).
Step 2: Calculate the periodic coupon payment:
The periodic coupon payment can be calculated as (Coupon Rate * Face Value) / Number of Payments per Year:
Coupon Payment = (0.07 * $100,000) / 2 = $3,500
Step 3: Calculate the present value of coupon payments:
To calculate the present value of the coupon payments, we need to discount each payment using the YTM. Since the coupon payments are semi-annual, we use half of the YTM (2.5%) as the periodic interest rate for discounting.
Present Value of Coupon Payments = ∑ (Coupon Payment / (1 + (YTM / 2))^n)
where n ranges from 1 to the total number of coupon payments (40).
Step 4: Calculate the present value of the face value:
The face value is paid at maturity, so we need to calculate its present value using the YTM.
Present Value of Face Value = Face Value / (1 + (YTM / 2))^n
where n is the total number of periods until maturity (40).
Step 5: Calculate the total bond price:
The bond price is the sum of the present value of coupon payments and the present value of the face value.
Bond Price = Present Value of Coupon Payments + Present Value of Face Value
Performing the calculations:
Step 1: Number of coupon payments = 40
Step 2: Coupon Payment = $3,500
Step 3: Present Value of Coupon Payments = ∑ (Coupon Payment / (1 + (YTM / 2))^n)
∑ (3,500 / (1 + (0.05 / 2))^n) for n = 1 to 40
≈ $53,933.04
Step 4: Present Value of Face Value = 100,000 / (1 + (0.05 / 2))^40
≈ $38,091.45
Step 5: Bond Price = $53,933.04 + $38,091.45
≈ $92,024.49
Therefore, the price of the bond, with a face value of $100,000, a 7.00% coupon rate, semi-annual coupons, and a maturity of 20 years, when the yield to maturity is 5.0%, is approximately $92,024.49.
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During the Great Depression, the U.S. economy was functioning far below full capacity. At that time, what would have been the effect of a large increase in government spending? OA. A small decrease in aggregate supply and a large decrease in price levels OB. A small increase in wages and a large increase in price levels OC. A small increase in price levels and a large increase in RGDP OD. A small decrease in aggregate demand and a large decrease in RGDP
Throughout the great depression, the U.S. economic system was experiencing high unemployment and enormous underutilization of assets, indicating a state of recessionary gap.
In this kind of scenario, a large growth in authorities spending would have had a positive effect at the economy. with the aid of injecting extra funds into the gadget, authorities spending might have extended combination demand (ad), leading to an expansionary impact.
This growth in government spending might have stimulated monetary hobby, developing jobs and decreasing unemployment. As a result, mixture supply (AS) would have extended, main to a small growth in fee levels and a big boom in actual Gross domestic Product (RGDP).
Consequently, the correct option would be C: a small increase in price levels and a large increase in RGDP.
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What is the effective annual rate of interest if $800.00 grows to $1100 00 in four years compounded semi-annually? The effective annual rate of interest as a percent is % (Round the final answer to fo
Given,
Principal (P) = $800.00
Amount (A) = $1100.00
Time (t) = 4 years
Compounded semi-annually
The effective annual rate of interest can be calculated using the formula given below:$$A=P{\left(1+\frac{r}{n}\right)}^{n\cdot t}$$where P is the principal, r is the interest rate, t is the time in years, and n is the number of times the interest is compounded in a year. To find the effective annual rate of interest, the following steps can be followed:1. Calculate the semi-annual interest rate, which is given by the formula given below:$$i=\frac{r}{n}$$where r is the annual interest rate and n is the number of times the interest is compounded in a year.
Here, n = 2 since the interest is compounded semi-annually. Therefore, we get$$i=\frac{r}{n}=\frac{r}{2}$$2. Using the given formula to find the amount (A), we get$$A=P{\left(1+\frac{r}{n}\right)}^{n\cdot t}=800{\left(1+\frac{r}{2}\right)}^{2\cdot 4}$$Simplifying, we get$$1100=800{\left(1+\frac{r}{2}\right)}^{8}$$Dividing by 800 on both sides, we get$$\frac{1100}{800}=\left(1+\frac{r}{2}\right)^8$$$$\frac{11}{8}=\left(1+\frac{r}{2}\right)^8$$Taking the eighth root on both sides, we get$$\left(1+\frac{r}{2}\right)=\sqrt[8]{\frac{11}{8}}$$Simplifying, we get$$1+\frac{r}{2}=\sqrt[8]{\frac{11}{8}}$$$$\frac{r}{2}=\sqrt[8]{\frac{11}{8}}-1$$Multiplying by 2 on both sides, we get$$r=2\left(\sqrt[8]{\frac{11}{8}}-1\right)$$3.
Now that we have found the annual interest rate, we can calculate the effective annual rate (EAR) of interest using the formula given below:$$EAR=\left(1+\frac{r}{n}\right)^n-1$$where n is the number of times the interest is compounded in a year. Here, n = 2 since the interest is compounded semi-annually. Therefore, we get$$EAR=\left(1+\frac{r}{n}\right)^n-1=\left(1+\frac{r}{2}\right)^2-1$$Substituting the value of r that we found earlier, we get$$EAR=\left(1+2\left(\sqrt[8]{\frac{11}{8}}-1\right)/2\right)^2-1$$$$EAR=\left(\sqrt[8]{\frac{11}{8}}\right)^2-1=\frac{11}{8}-1=-\frac{3}{8}$$Therefore, the effective annual rate of interest is -3/8 as a percentage.
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On 1 January 2019 Westgate acquired all of RockeyCrest's 100 000 $1 shares for $300 000. The goodwill acquire in the business combination was $40 000 of which 50% had been written off as impaired by 31 December 2021. On 31 December 2021 Westgate sold all of RockeyCrest's shares for $450000 when RockeyCrest had retained earnings of $185 000. WHat is the profit of disposal that should be included in the consolidated fianacial statements of Westgate?
The profit of disposal that should be included in the consolidated financial statements of Westgate is $170,000.
The profit of disposal that should be included in the consolidated financial statements of Westgate, we need to determine the gain or loss on the sale of RockeyCrest's shares. The gain or loss is calculated as the difference between the proceeds from the sale and the carrying value of the investment in RockeyCrest.
Carrying value of investment in RockeyCrest = Cost of acquisition - Impairment
= $300,000 - ($40,000 * 50%)
= $280,000
Proceeds from the sale of RockeyCrest's shares = $450,000
Profit of disposal = Proceeds - Carrying value
= $450,000 - $280,000
= $170,000
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Suppose you earned a $710,000 bonus this year and invested it at 8.25% per year. How much could you withdraw at the end of each of the next 20 years? Select the correct answer. a. $73,665.61 b. $73,687.51 c. $73,694.81 d. $73,680.21 e. $73,672.91
The correct answer is c. $73,694.81.
To calculate the amount that can be withdrawn at the end of each year, we can use the formula for the future value of an annuity.
The formula for calculating the future value of an annuity is:
FV = P * [(1 + r)^n - 1] / r
Where:
FV = Future Value of the annuity
P = Payment (or withdrawal) amount
r = Interest rate per period
n = Number of periods
By plugging in the values, we find that the annual withdrawal amount would be approximately $73,694.81.
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Discuss the fiscal policy and monetary policy and how they
differ.
Discuss the differences between macroeconomics and
microeconomics.
Fiscal policy and monetary policy are two tools used by governments to manage the economy.
Fiscal policy refers to the government's use of taxation and spending to influence the economy. It involves decisions on how much money the government should spend on public goods and services, as well as how much it should collect in taxes. The main goal of fiscal policy is to stabilize the economy by promoting economic growth and reducing unemployment.
In contrast, monetary policy focuses on controlling the money supply and interest rates. It is managed by the central bank and aims to influence borrowing, investment, and spending. By adjusting interest rates and conducting open market operations, the central bank can stimulate or slow down the economy.
Differences between macroeconomics and microeconomics:
Macroeconomics and microeconomics are two branches of economics that focus on different scales of analysis.
Macroeconomics examines the overall performance of the economy as a whole. It analyzes variables such as gross domestic product (GDP), inflation, unemployment, and national income. Macroeconomists study how aggregate variables interact and affect the economy's overall health. Microeconomics, on the other hand, zooms in on individual economic agents, such as households, firms, and markets.
It looks at the behavior of these agents and how they make decisions regarding production, consumption, and pricing. Microeconomics also explores concepts like supply and demand, market equilibrium, and the allocation of resources. In summary, while macroeconomics focuses on the big picture, microeconomics delves into the details of individual economic units.
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Drug producers have been criticized for:
A. Charging different fees to different organizations for the same drug
B. Their unwillingness to work with CMS
C. Their complete inability to provide COVID vaccines on time
D. Creating very high mark-ups on their drugs
Options -
1. All are correct
2. A and D are correct
3. B and C are correct
4. A,C and D are correct
Drug producers have been criticized for charging different fees to different organizations for the same drug and creating very high mark-ups on their drugs. So, the correct options are A and D are correct.
What is drug markup?The increase between a drug's actual cost and the cost a drugstore charges is known as the drug markup.
This value represents the gross profit a pharmacy makes on a drug by simply subtracting the actual drug price from the drugstore's selling price.
Drug producers' Criticism:
Drug manufacturers have been criticized for a variety of reasons, including the following:
They have been accused of charging different rates to different organizations for the same drug
They have been criticized for creating excessively high mark-ups on their medicines.
Hence, correct options are A and D.
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The S&P 500 Index is down about 25% YTD (year to date), which makes a lot of people nervous but makes you excited because you have a long time before retirement and you have cash yet to be invested.
In your savings account with an FDIC-insured bank, you have $2,000, which you are reasonably sure that you won't need it for the next 10 years.
You believe in the long-term (10+ years), the S&P 500 index is likely, but not guaranteed, to compound at a rate higher than the 3% APY offered by the savings account. You decided to put $1,000 of your $2,000 to a S&P 500 Index fund. You opened a brokerage account, transferred $1,000 from your savings account to the brokerage account, and purchase some shares of a S&P 500 index fund.
Which of your account is FDIC-insured?
A. Both your savings account and your brokerage account
B. Your savings account
C. Your brokerage account
D. Neither your savings account nor your brokerage account
The FDIC (Federal Deposit Insurance Corporation) provides deposit insurance for bank accounts. In this scenario, your savings account with an FDIC-insured bank is the account that is FDIC-insured. Therefore, the correct answer is: option B. Your savings account
The FDIC insures deposits in banks up to $250,000 per depositor, per account ownership category, in the event that the bank fails. This insurance coverage provides protection for your savings account funds in case of bank failure or other qualifying events.
On the other hand, your brokerage account, where you transferred $1,000 to purchase shares of an S&P 500 index fund, is not FDIC-insured. Brokerage accounts are typically used for investing in stocks, bonds, and other securities, and they carry different types of protections and regulations compared to bank accounts.
While brokerage firms may provide certain protections and safeguards for investors, such as SIPC (Securities Investor Protection Corporation) coverage, they do not offer FDIC insurance for the funds held in brokerage accounts.
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Calculate the bond equivalent yield on a jumbo CD that is 120 days from maturity and has a quoted nominal yield of 7 percent.
The bond equivalent yield on the jumbo CD is 7.32 percent.
To calculate the bond equivalent yield on a jumbo CD, first convert the quoted nominal yield to a semi-annual yield. Since a year has two semi-annual periods, divide the nominal yield by two to get the semi-annual yield. In this case, 7 percent divided by 2 equals 3.5 percent.
Next, calculate the bond equivalent yield by multiplying the semi-annual yield by two. In this case, 3.5 percent multiplied by 2 equals 7 percent.
Therefore, the bond equivalent yield on the jumbo CD is 7 percent.
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What will happen if consumers of a good experience an increase in their incomes? Note: more than one answer is correct, and picking wrong answers has a penalty. Pick all and only the correct answers for full credit. Select one or more: a. Demand for the good will increase. b. Demand for the good will decrease. Dc Supply of the good will increase. □d. Supply of the good will decrease. e. The price of the good will tend to rise. f The price of the good will tend to fall. g. The quantity purchased of the good will tend to get larger. h The quantity purchased of the good will tend to get smaller. Question 2 Not yet answered Points out of 1 question What will happen if new technology enables the same resources to produce greater quantities of a good than before? Note: more than one answer is correct, and picking wrong answers has a penalty. Pick all and only the correct answers for full credit. Select one or more: a. Demand for the good will increase. b. Demand for the good will decrease. Supply of the good will increase. Dc d. Supply of the good will decrease. e. The price of the good will tend to rise. f. The price of the good will tend to fall. g. The quantity purchased of the good will tend to get larger. h. The quantity purchased of the good will tend to get smaller.
An increase in consumers' incomes, the correct answers are:
a. Demand for the good will increase.
e. The price of the good will tend to rise.
g. The quantity purchased of the good will tend to get larger.
New technology enabling greater production, the correct answers are:
c. Supply of the good will increase.
f. The price of the good will tend to fall.
g. The quantity purchased of the good will tend to get larger.
When consumers experience an increase in their incomes, it typically leads to an increase in their purchasing power. As a result, the demand for goods tends to increase because consumers have more disposable income to spend. This increased demand can lead to upward pressure on prices (as consumers are willing to pay higher prices) and a larger quantity of the good being purchased.
When new technology allows the same resources to produce greater quantities of a good, it typically leads to an increase in the supply of that good. With increased supply, the market equilibrium price tends to decrease as producers are able to offer more of the good at a lower cost. This price reduction can lead to an increase in the quantity purchased by consumers.
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12. It is a set of economic policy prescriptions by the Bretton Woods institutions considered to promote economic growth to poor countries A. World Trade Policy B. Non-Technical Barriers to Trade C. Protectionism D. Washington Consensus 13. How do you balance the GDP when the Trade Balance is negative? A. You raise taxes, so that the Government's spending increases B. You reduce the Government spending by privatization processes of public enterprises C. You try to get loans from other countries so that you can finance your current account D. None of the above 14. According to the Washington consensus, liberalization of commerce means... A. Liberalization of imports with elimination of restrictions of commerce B. Taxing sensitive products so that the local industry can develop C. Working with the WTO so that it implements rules against import restriction D. None of the above 15. The Gravity Model of Trade predicts the trade flow based on economic sizes and between two countries A. Level of debt B. Level of tax C. Distance D. Level of Barriers to Trade 16. Excessive tariffs to imports in order to protect the local industry is known as A. The Gravity Model of Trade B. Says' Law of Trade C. Non-Technical Barriers to Trade D. Technical Barriers to Trade 17. Barriers to trade through tariffs are commonly used for... A. Financing government spending. B. Protecting local industries. C. Allocate those resources as savings and then as investment D. All of the above
Solving particularly, 12. D. Washington Consensus, 13. C. You try to get loans from other countries so that you can finance your current account, 14. A. Liberalization of imports with the elimination of restrictions on commerce, 15. C. Distance, 16. D. Technical Barriers to Trade, 17. B. Protecting local industries.
12. D. Washington Consensus: It is a set of economic policy prescriptions by the Bretton Woods institutions aimed at promoting economic growth in poor countries.
13. C. You try to get loans from other countries so that you can finance your current account: This helps balance the GDP when the Trade Balance is negative.
14. A. Liberalization of imports with the elimination of restrictions of commerce: According to the Washington Consensus, liberalization of commerce means removing barriers to imports.
15. C. Distance: The Gravity Model of Trade predicts trade flow based on economic sizes and the distance between two countries.
16. D. Technical Barriers to Trade: Excessive tariffs to protect the local industry are known as technical barriers to trade.
17. B. Protecting local industries: Barriers to trade through tariffs are commonly used for the purpose of protecting local industries.
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Dinar Berhad is located in Bayan Lepas where a market is held regularly. It decided to buy a bus to take passengers to and from the market. It is estimated that 200 tickets could be sold a day for RM4 each. Dinar Berhad intended to run the bus for three years. It had the option of buying a newer bus, bus A, or an older bus, bus B. Dinar Berhad knew that the older bus would be less reliable and there would be more days each year when the bus could not run because of breakdowns and maintenance. It would also require more money to be spent on repairs. The followine estimated information was available. Other running costs were expected to the same for both buses, Dinar Berhad uses a cost of eapital of 10%. a) Calculate the difference in NPV between purehasing bus A and bus B.
The difference in NPV between purchasing bus A and bus B is approximately RM47,260.64.
To calculate the difference in net present value (NPV) between purchasing bus A and bus B, we need to compare the cash flows associated with each option and discount them to their present values using the cost of capital.
Let's assume the following information:
Bus A:
Initial cost: RM200,000
Annual maintenance cost: RM10,000
Reliability: High (no breakdowns or maintenance days)
Bus B:
Initial cost: RM150,000
Annual maintenance cost: RM15,000
Reliability: Low (breakdowns and maintenance days)
Using a discount rate of 10% and a three-year time horizon, we can calculate the NPV for each option:
NPV(A) = -200,000 + (200 * 4 - 10,000) / (1 + 0.10) + (200 * 4 - 10,000) / (1 + 0.10)^2 + (200 * 4 - 10,000) / (1 + 0.10)^3
NPV(B) = -150,000 + (200 * 4 - 15,000) / (1 + 0.10) + (200 * 4 - 15,000) / (1 + 0.10)^2 + (200 * 4 - 15,000) / (1 + 0.10)^3
Calculating these values, we get:
NPV(A) ≈ -200,000 + 6846.28 + 6215.71 + 5650.65 ≈ -200,000 + 18,712.64 ≈ -181,287.36
NPV(B) ≈ -150,000 + 5839.81 + 5308.01 + 4825.46 ≈ -150,000 + 15,973.28 ≈ -134,026.72
The difference in NPV between purchasing bus A and bus B can be calculated as:
Difference in NPV = NPV(A) - NPV(B) ≈ -181,287.36 - (-134,026.72) ≈ -47,260.64
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The secular trend refers to:
fluctuations in business activity which occur around Christmas, Easter, and so forth.
the long-run increase in the relative importance of durable goods in the U.S. economy.
the long-term expansion or contraction of business activity which occurs over 50 or I 00 years.
fluctuations in business activity which average 40 months in duration.
The secular trend refers to the long-term expansion or contraction of business activity that occurs over 50 or 100 years. It represents the underlying trend or direction of economic growth and is distinct from short-term fluctuations or cycles that occur within the secular trend. These short-term fluctuations are referred to as business cycles and typically average around 40 months in duration. Therefore, the correct option is:
c. The long-term expansion or contraction of business activity which occurs over 50 or 100 years.
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3. The prices in the stock market are driven by____________.
A. the respective companies
B. supply and demand
C. the government
D. Follow-up Offerings (FPO)
Correct option is B. The prices in the stock market are driven by supply and demand. The stock market refers to a collection of markets and exchanges where activities such as stock trading, issuance, and other activities related to stocks take place.
As per the definition, the stock market is a place where people buy and sell shares of public companies. A stock is a share in the ownership of a company, so if an individual purchases a stock, they essentially become a partial owner of the company.The stock market can be affected by various factors such as political changes, economic events, natural disasters, and social instability.
However, the most significant driving force behind the stock market is supply and demand.When there is high demand for a particular stock, its price rises, and when the demand is low, the price falls. Similarly, when the supply of a stock is high, the price falls, and when the supply is low, the price rises. Thus, the forces of supply and demand drive the prices in the stock market.
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Explain this statement below is it true or false given
in the below
1) Call option has no maximum possible value, a put
option does
A call option has unlimited profit potential, while a put option's profit potential is limited to the strike price.
Here are the key points:
A call option gives the holder the right to buy an underlying asset at a specific price (strike price) on or before a specified expiration date.
A put option gives the holder the right to sell an underlying asset at a specific price (strike price) on or before a specified expiration date.
The maximum possible value of a call option is unlimited, because there is no upper limit to how high the market price of the underlying asset can rise.
The maximum possible value of a put option is the strike price, because the holder of the put option can only sell the asset for the strike price.
If the market price of the underlying asset falls to zero, the holder of the put option can sell the asset for the strike price and earn the maximum possible profit.
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