Exam 3: Time Value of Money: An Introduction

A U.S.-based manufacturer of sunscreen is contemplating using funds to purchase courtside advertising at major tennis matches such as the French Open and the Australian Open.Advertising at such well viewed international events will then raise the domestic sales of the manufacturers products.Which of the following factors will probably raise the LEAST difficulties when comparing the costs and benefits associated with this particular decision?

What is the present value (PV)of $100,000 received five years from now,assuming the interest rate is 8% per year?

You see on Craigslist that a used XBOX 360 sells for $100 and a new XBOX 360 sells for $300.Is this an arbitrage opportunity?

Use the table for the question(s)below. Consider the following prices from a McDonald's Restaurant: -A McDonald's Big Mac value meal consists of a Big Mac sandwich,large Coke,and a large fry.Assume that there is a competitive market for McDonald's food items and that McDonald's sells the Big Mac value meal for $4.79.Does an arbitrage opportunity exists and if so how would you exploit it and how much would you make on one value meal?

Refer to the table above.An international seafood supplier is offered 9.45 million yen today for 1000 pounds of abalone frozen in the shell.The abalone can be sourced from various countries at the prices shown above.The current market exchange rates between the United States and the other relevant currencies are also shown.In addition,$1 U.S.= 105 yen.What is the value of the best deal the international seafood supplier can make,in U.S.dollars?

In order to distinguish between inflows and outflows,different colors are assigned to each of these cash flows when constructing a timeline.

How does arbitrage help the Law of One Price?

What is the future value (FV)of $20,000 in four years,assuming the interest rate is 12% per year?

Which of the following statements is FALSE?

Why are arbitrage opportunities short-lived?

Is there a need to distinguish between cash inflows and outflows on a timeline?

What is the future value (FV)of $10,000 in eight years,assuming the interest rate is 10% per year?

An investor has the opportunity to buy a $10,000 government bond which is guaranteed to yield 6.5% interest in one year's time.The investor decides to make the investment as there is a net difference between the cost and benefit.Which of the following is NOT a reason that the investor's decision may be flawed?

What is one of the main obstacles in cost benefit analysis?

What is the present value (PV)of $50,000 received 20 years from now,assuming the interest rate is 4% per year?

Consider the following timeline: If the current market rate of interest is 9%,then the present value (PV)of this timeline as of year 0 is closest to:

You are watching TV late one night and see an ad from Ronco for the Dial-o-matic food slicer.You learn that the Dial-o-matic sells for $29.95.But wait,there's more! Ronco is also including in this deal a set of Ginsu steak knives worth $10.95 and another free gift worth $7.95.Assuming that there is a competitive market for Ronco items,at what price must Ronco be selling this three item Dial-o-matic deal to insure the absence of an arbitrage opportunity and uphold the Law of One Price?

Heavy Duty Inc. ,a manufacturer of power tools,decides to offer a rebate of $100 on its 16-inch mid-range chain saw,which currently has a retail price $470.Heavy Duty's marketers estimate that,as a result of the rebate,sales of this model will increase from 50,000 to 80,000 units next year.The profit margin for Heavy Duty before the rebate is $150.Based on the given information,is the decision to give the rebate a wise one?

In a trade with the government of an oil producing nation,a manufacturer will deliver 14 Caterpillar D9 tractors,with a value of $350,000 per tractor,and receive 45,000 barrels of oil,valued at $115 per barrel.What is the net benefit of this trade to the manufacturer?

The Law of One Price states that if equivalent goods or securities are traded simultaneously in different competitive markets,they will trade for the same price in each market.