Exam 3: Financial Decision Making and the Law of One Price

Another oil refiner is offering to trade you 10,150 Bbls of Alaska North Slope (ANS)crude oil for 10,000 Bbls of West Texas Intermediate (WTI)crude oil.Assuming you just purchased 10,000 Bbls of WTI crude at the current market price,the added benefit (cost)to you if you take the trade is closest to:

Which of the following statements is INCORRECT?

If the risk-free interest rate is 10%,then of the four projects listed,which project would you never want to invest in?

Recycle America Inc.has the opportunity to trade 8000 pounds of plastic pellets made from recycled soda bottles for 5000 pounds of aluminum cans.If the current market price of scrap aluminum is $0.83 per pound and the current market price for plastic pellets is $0.57 per pound,then the added benefit (cost)of making this trade is:

Consider an ETF that is made up of one share each of IBM,MRK,and C.The minimum ask price for this ETF in a normal market is closest to:

Assuming that the film maker issues the new security,the NPV for this project is closest to what amount? Should the film maker make the investment?

Which of the following statements regarding value additivity is FALSE?

Which one of the following statements is FALSE?

Use the information for the question(s)below. As an oil refiner,you are able to produce $76 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS)crude oil.Because of its lower sulfur content,you can produce $77 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI)crude. -Another oil refiner is offering to trade you 10,150 Bbls of Alaska North Slope (ANS)crude oil for 10,000 Bbls of West Texas Intermediate (WTI)crude oil.Assuming you currently have 10,000 Bbls of WTI crude,the added benefit (cost)to you if you take the trade is closest to:

If the interest rate is 7%,the alternative with the lowest NPV is:

Consider an ETF that is made up of one share each of IBM,MRK,and C.The current quote for this ETF currently is 163.15 (bid)$163.20 (ask).What should you do?

Consider two securities,A & B.Suppose a third security,C,has the same cash flows as A and B combined.Given this information about securities A,B,& C,which of the following statements is INCORRECT?

You have an investment opportunity in Germany that requires an investment of $250,000 today and will produce a cash flow of €208,650 in one year with no risk.Suppose the risk-free rate of interest in Germany is 6% and the current competitive exchange rate is €0.78 to $1.00.What is the NPV of this project? Would you take the project?

The price per share of the ETF in a normal market is:

Which of the following formulas regarding NPV is INCORRECT?

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 extra value meal?

Use the table for the question(s)below. -If the risk-free interest rate is 10%,then the NPV for Eenie is closest to:

Due to a pre-existing contract,Recycle America Inc.has the opportunity to acquire 10,000 pounds of scrap aluminum and 2500 pounds of scrap lead for $10,750.If the current market price for scrap aluminum is $0.83 per pound and the current market price for lead is $1.06 per pound,then the added benefit (cost)to you if you acquire this metal is:

Use the table for the question(s)below. -Consider an ETF that is made up of one share each of IBM,MRK,and C.The minimum bid price for this ETF in a normal market is closest to:

Use the information for the question(s)below. An exchange traded fund (ETF)is a security that represents a portfolio of individual stocks.Consider an ETF for which each share represents a portfolio of two shares of International Business Machines (IBM),three shares of Merck (MRK),and three shares of Citigroup Inc.(C).Suppose the current market price of each individual stock are shown below: -Assume that the ETF is trading for $366.00,what (if any)arbitrage opportunity exists? What (if any)trades would you make?