Question: Suppose you purchase a Treasury bond futures

> How does one distinguish between an off-balance-sheet asset and an off-balance-sheet liability?

> What is the difference between a call option and a put option?

> What is an option? How does an option differ from a forward or futures contract?

> Refer to Table 10–4. a. If you think five-year Treasury note prices will fall between August 3, 2016, and December 2016, what type of futures position would you take? b. If you think inflation in Japan will increase by more than that in

> What is the purpose of requiring a margin on a futures or option transaction? What is the difference between an initial margin and a maintenance margin?

> What are the functions of floor brokers and professional traders on the futures exchanges?

> What are the differences between a cap, a floor, and a collar? When would a firm enter any of these derivative security positions?

> What are the differences among a spot contract, a forward contract, and a futures contract?

> Which party is the swap buyer and which is the swap seller in an interest rate swap transaction?

> Who are the major regulators of futures and options markets?

> Based on economists’ forecasts and analysis, one-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: Using the liquidity premium theory, plot the current yield curve. Make sure you

> What factors affect the value of an option?

> What are the three ways an option holder can liquidate his or her position?

> What must happen to the price of the underlying stock for the purchaser of a put option on the stock to make money? How does the writer of the put option make money?

> What must happen to the price of the underlying T-bond futures contract for the purchaser of a call option on T-bond futures to make money? How does the writer of the call option make money?

> What is a derivative security?

> If international capital markets are well integrated and operate efficiently, will FIs be exposed to foreign exchange risk? What are the sources of foreign exchange risk for FIs?

> What are the two primary methods of hedging FX risk for an FI? What conditions are necessary to achieve a perfect hedge through on-balance-sheet hedging? What are the advantages and disadvantages of off-balance-sheet hedging in comparison to on-balance-s

> What motivates FI managers to hedge foreign currency exposures? What are the limitations to hedging foreign currency exposures?

> What is the spot market for FX? What is the forward market for FX? What is the position of being net long in a currency?

> How are foreign exchange markets open 24 hours per day?

> Calculate the fair present value of the following bonds, all of which have a 10 percent coupon rate (paid semiannually), face value of $1,000, and a required rate of return of 8 percent. a. The bond has 10 years remaining to maturity. b. The bond has 15

> How did the Bretton Woods and the Smithsonian Agreements affect the ability of foreign exchange rates to float freely? How did the elimination of exchange boundaries in 1973 affect the ability of foreign exchange rates to float freely?

> A U.S. insurance company invests $1,000,000 in a private placement of British bonds. Each bond pays £300 in interest per year for 20 years. If the current exchange rate is £1.364/$, what is the nature of the insurance company’s exchange rate risk? Specif

> If the Swiss franc is expected to depreciate relative to the U.S. dollar in the near future, would a U.S.-based FI in Bern City prefer to be net long or net short in its asset positions? Discuss.

> Why must the current account balance equal the value of the capital plus financial account balance (in opposite sign)?

> Why has the United States held a trade deficit for most of the 1990s and 2000s? Make sure you distinguish between the imports versus exports of goods and services.

> Explain the concept of interest rate parity. What does this concept imply about the long-run profit opportunities from investing in international markets? What market conditions must prevail for the concept to be valid?

> What is the purchasing power parity theorem?

> What is the implication for cross-border trades if it can be shown that interest rate parity is maintained consistently across different markets and different currencies?

> What are the major foreign exchange trading activities performed by financial institutions?

> What are foreign exchange markets and foreign exchange rates? Why is an understanding of foreign exchange markets important to financial managers and individual investors?

> The Wall Street Journal reports that the rate on four-year Treasury securities is 5.60 percent and the rate on five-year Treasury securities is 6.15 percent. According to the unbiased expectations theory, what does the market expect the one-year Treasury

> What is a market order? What is a limit order? How are each executed?

> What have been the trends in the growth of the major U.S. stock market exchanges?

> Describe the registration process for a new stock issue.

> What is the difference between cumulative and noncumulative preferred stock?

> What is the difference between nonparticipating and participating preferred stock?

> What is a dual-class firm? Why do firms typically issue dual classes of common stock?

> What is meant by the statement “common stockholders have a residual claim on the issuing firm’s assets”?

> What is an ADR? How is an ADR created?

> What are some characteristics associated with dividends paid on common stock?

> You have written a call option on Walmart common stock. The option has an exercise price of $74, and Walmart’s stock currently trades at $72. The option premium is $1.25 per contract. a. How much of the option premium is due to intrinsic value versus tim

> Calculate the fair present values of the following bonds, all of which pay interest semiannually, have a face value of $1,000, have 12 years remaining to maturity, and have a required rate of return of 10 percent. a. The bond has a 6 percent coupon rate.

> You have taken a long position in a call option on IBM common stock. The option has an exercise price of $176 and IBM’s stock currently trades at $180. The option premium is $5 per contract. a. How much of the option premium is due to intrinsic value ver

> Suppose an investor has a $1 million long position in T-bond futures. The investor’s broker requires a maintenance margin of 4 percent, which is the amount currently in the investor’s account. a. Suppose also that the value of the futures contract drops

> Dudley Savings Bank wishes to take a position in Treasury bond futures contracts, which currently have a quote of 105100. Dudley Savings thinks interest rates will go down over the period of investment. a. Should the bank go long or short on the futures

> Tree Row Bank wishes to take a position in Treasury bond futures contracts, which currently have a quote of 95-040. Tree Row thinks interest rates will go up over the period of investment. a. Should the bank go long or short on the futures contracts? b.

> Consider the following two financial institutions: Managers of the bank are concerned that interest rates may fall over the next four years, while managers of the savings association are concerned that interest rates may rise over the next four years.

> Consider the following two financial institutions: Managers of the money center bank are concerned that interest rates may fall over the next four years, while managers of the savings bank are concerned that interest rates may rise over the next four y

> A commercial bank has $200 million of floating-rate loans yielding the T-bill rate plus 2 percent. These loans are financed with $200 million of fixed-rate deposits costing 9 percent. A savings bank has $200 million of mortgages with a fixed rate of 13 p

> An insurance company owns $50 million of floating-rate bonds yielding LIBOR plus 1 percent. These loans are financed with $50 million of fixed-rate guaranteed investment contracts (GICs) costing 10 percent. A finance company has $50 million of auto loans

> An FI has purchased a $200 million cap of 9 percent at a premium of 0.65 percent of face value. A $200 million floor of 4 percent is also available at a premium of 0.69 percent of face value. a. If interest rates rise to 10 percent, what is the amount r

> Calculate the yield to maturity on the following bonds: a. A 9 percent coupon (paid semiannually) bond, with a $1,000 face value and 15 years remaining to maturity. The bond is selling at $985. b. An 8 percent coupon (paid quarterly) bond, with a $1,000

> A particular security’s equilibrium rate of return is 8 percent. For all securities, the inflation risk premium is 1.75 percent and the real risk-free rate is 3.5 percent. The security’s liquidity risk premium is 0.25 percent and maturity risk premium is

> A factory manufactures jelly. The jars of jelly are packed six to a box, and the boxes are sold to grocery stores. The following types of cost were incurred: Required: Classify each of the costs as direct materials, direct labor, or overhead by using t

> Loring Company incurred the following costs last year: Required: 1. Classify each of the costs using the following table format. Be sure to total the amounts in each column. Example: Direct materials, $216,000. 2. What was the total product cost for

> Tidwell Company experienced the following during 20X1: a. Sold preferred stock for $480,000. b. Declared dividends of $150,000 payable on March 1, 20X2. c. Borrowed $575,000 from a bank on a 2-year note. d. Purchased $80,000 of its own common stock to ho

> Brunello Winery produces expensive wines. Brunello’s enterprise risk management team has chosen its particular risk response to each of its top five inherent risks. The risk graph below shows Brunello’s risks after all

> Blaylock Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of tractors. The outlay required is $384,000. The NC equipment will last 5 years with no expected salvage value. The ex

> Spiro Hospital is investigating the possibility of investing in new dialysis equipment. Two local manufacturers of this equipment are being considered as sources of the equipment. After-tax cash inflows for the two competing projects are as follows: Bo

> Barolo Company manufactures laptop stickers for Italian sports teams. Barolo’s risk management team has identified the company’s top five inherent risks and plans to manage them using a typical ERM portfolio perspectiv

> The Avila Division of Maldonado Company had operating income last year of $136,400 and average operating assets of $1,900,000. Maldonado’s minimum acceptable rate of return is 9%. (Note: Round all answers to two decimal places.) Required: 1. Calculate t

> Data follow for the Consumer Products Division of Kisler Inc.: Required: 1. Compute the margin and turnover ratios for each year. 2. Compute the ROI for the Consumer Products Division for each year. Year 1 Year 2 Sales $ 92,100,000 $ 98,750,000 Ope

> Pelak Company had sales of $25,000,000, expenses of $17,500,000, and average operating assets of $10,000,000. Required: Compute the (1) operating income, (2) margin and turnover ratios, and (3) ROI.

> Refer to the information for Slap shot Company on the previous page. Required: Prepare an income statement for Slap shot for the month of June. Data for Question 24: Slap shot Company makes ice hockey sticks and sold 1,880 sticks during the month of J

> Healing Hands Massage Hut offers high-end, specialized massages and grooming services, including manicures, pedicures, facials, and full-body massages. Healing Hands is a new startup service organization that generates monthly sales of $200,000. As a sta

> Refer to the information for Morning Smiles Coffee Company on the previous page. Required: Prepare an income statement for Morning Smiles for the month of March and calculate the percentage of sales revenue represented by each line of the income stateme

> Refer to the information for Morning Smiles Coffee Company on the previous page. Required: Prepare an income statement for Morning Smiles for the month of March. Data for Question 32: Morning Smiles Coffee Company manufactures Stoneware French Press c

> Morning Smiles Coffee Company manufactures Stoneware French Press coffee makers. During the month of March, 8,100 coffee makers were completed at a cost of goods manufactured of $607,500. Suppose that on March 1, Morning Smiles had 1,000 units in finishe

> Morning Smiles Coffee Company manufactures Stoneware French Press coffee makers. During the month of March, the company purchased $350,000 of materials. Also during the month of March, Morning Smiles incurred direct labor cost of $74,000 and manufacturin

> Morning Smiles Coffee Company manufactures Stoneware French Press coffee makers. On March 1, Morning Smiles had $25,000 of materials in inventory. During the month of March, the company purchased $350,000 of materials. On March 31, materials inventory eq

> Refer to the information for Morning Smiles Coffee Company on the previous page. Required: 1. Calculate the total prime cost for last week. 2. Calculate the per-unit prime cost. 3. Calculate the total conversion cost for last week. 4. Calculate the per-

> Refer to the information for Morning Smiles Coffee Company above. Required: 1. Calculate the total product cost for last week. 2. Calculate the per-unit cost of one coffee maker that was produced last week. Data for Question 27: Morning Smiles Coffee

> Cardenas Pharmaceutical produces antibiotics. During April, Cardenas’s tableting department had the following data: Units in BWIP……………………………………… — Units completed …………………………..105,000 Units in EWIP (30% complete) ………15,750 Required: Calculate April’s ou

> Hardy Company produces 18-ounce boxes of a rolled oat cereal in three departments: mixing, cooking, and packaging. During September, Hardy produced 200,000 boxes with the following costs: Required: 1. Calculate the costs transferred out of each departm

> During April, the grinding department of Tranx Inc. completed and transferred out 315,000 units. At the end of April, there were 112,500 units in process, 60% complete. Tranx incurred manufacturing costs totaling $2,295,000. Required: 1. Calculate the u

> Refer to the information for Saludable Inc. above. Required: 1. Calculate the equivalent units for November. 2. Calculate the unit cost. (Note: Round to two decimal places.) 3. Assign costs to units transferred out and EWIP using the FIFO method. Data

> Refer to the information for Saludable Inc. above. Required: 1. Calculate the equivalent units for November. 2. Calculate the unit cost. (Note: Round to two decimal places.) 3. Assign costs to units transferred out and EWIP using the FIFO method. Data

> Craig Company produces electronic components for cell phone producers. The receiving department at Craig has eight clerks who process incoming goods. The total cost of their salaries is $440,000. The work distribution for the activities that they perform

> Refer to the information above for Cinturas Company. The following activity data have been collected: Cutting ………………â€&brv

> Tara Company takes 8,000 hours to produce 40,000 units of a product. Required: What is the velocity? Cycle time?

> Evans Inc. has the following two activities: (1) Reworking products, cost: $740,000. The reworking cost of the most efficient similar-sized competitor is $200,000. (2) Purchasing parts, cost: $900,000 (45,000 purchasing hours). A benchmarking study revea

> Refer to the information in Brief Exercise 4-31 for data. Now, assume that Jonson has decided to use a plant wide overhead rate based on direct labor hours. Required: 1. Calculate the predetermined plant wide overhead rate. (Note: Round to the nearest c

> Refer to the data for Beyta Company above. Required: 1. Calculate the cost of goods sold under variable costing. 2. Prepare an income statement using variable costing. Data for Exercise 33: During the most recent year, Beyta Company had the following

> Refer to the data for Beyta Company above. Required: 1. Calculate the cost of goods sold under absorption costing. 2. Prepare an income statement using absorption costing. Data for Exercise 32: During the most recent year, Beyta Company had the follow

> Refer to the data for Pelham Company on the previous page. Required: 1. How many units are in ending inventory? 2. Using variable costing, calculate the per-unit product cost. 3. What is the value of ending inventory under variable costing? Data for Ex

> Refer to the information for Zapato Company given above. The following activity data have been collected: Cutting ………………â€

> At the end of the year, Estes Company provided the following actual information: Overhead …………………………………$412,600 Direct labor cost …………………………532,000 Estes uses normal costing and applies overhead at the rate of 75% of direct labor cost. At the end of th

> At the beginning of the year, Estes Company estimated the following costs: Overhead ……………………………………..$450,000 Direct labor cost ……………………………..600,000 Estes uses normal costing and applies overhead on the basis of direct labor cost. (Direct labor cost i

> Chillmax Company plans to sell 3,500 pairs of shoes at $60 each in the coming year. Unit variable cost is $21 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $78,000 (includes fi

> Refer to the information for Speedy Pete’s above. Assume that this information was used to construct the following formula for monthly delivery cost. Total Delivery Cost = $41,850 + ($12.00 × Number of Deliveries) Required

> Chillmax Company plans to sell 3,500 pairs of shoes at $60 each in the coming year. Unit variable cost is $21 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Fixed factory overhead is $30,000 and fixed

> Chillmax Company plans to sell 3,500 pairs of casual shoes at $60 each in the coming year. Product costs include: Direct materials per pair …………………………………..$12 Direct labor per pair ……………………………………………4 Variable factory overhead per pair ……………………….2 Total

> Corey Company provided the following information: Standard fixed overhead rate (SFOR) per direct labor hour …….$10.00 Actual fixed overhead ………………………………………………………...$425,000 Budgeted fixed overhead …………………………………………………..$500,000 Actual production in units

> Bulger Company provided the following data: Standard fixed overhead rate (SFOR) ……..$8 per direct labor hour Actual fixed overhead costs ………………………………………….$985,300 Standard hours allowed per unit ………………………………………6 hours Actual production …………………………………………

> Potter Company provided the following information: Required: Prepare a performance report that shows the variances for each variable overhead item (inspection and power). Standard variable overhead rate (SVOR) per direct labor hour $5.00 Actual v

> Refer to the information for Ambient Inc. above. Required: Calculate the labor rate and efficiency variances using the columnar and formula approaches. Data for Problem 37: Ambient Inc. produces aluminum cans. Each can has a standard labor requirement

> Patrick Inc. sells industrial solvents in 5-gallon drums. Patrick expects the following units to be sold in the first 3 months of the coming year: January ………………………….41,000 February …………………………38,000 March ……………………………..50,000 The average price for a dru

> Refer to the information for Ambient Inc. above. Required: Calculate the total variance for production labor for the month of May. Data for Problem 36: Ambient Inc. produces aluminum cans. Each can has a standard labor requirement of 0.03 hour. During