Asignment Essay

1467 Words Aug 4th, 2013 6 Pages
QUESTION 2
For the Starbucks Company www.starbucks.com 1. What is the Net Present Value of the project? 2. What is the Internal Rate of Return of the project? 3. How are these figured out?

QUESTION 1-4

1. (Forward contract payout) Construct a delivery date profit or loss graph for a long position in a forward contract with a delivery price of$75. Analyze the profit or loss for values of the underlying asset ranging from $55 to $95.

a. Which of these graphs shows the correct profit/loss line for the long forward contract on the delivery date, T?

QA. GraphD QB. GraphA QC. GraphB QD. GraphC

Graph A GraphB j I j I
$2 $3

$2 $1 u
1 1$1

.... $0
0..,

$85 $95 .... $
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(Use a negative sign if there is a loss and round to the nearest dollar.)

2. (Forward contract payout) Construct a delivery date profit or loss graph for a short position in a forward contract with a delivery price of$75. Analyze the profit or loss for values of the underlying asset ranging from $55 to $100.

a. Which of these graphs shows the correct profit/loss line for the short forward contract on the delivery date, T?

QA. GraphD QB. GraphC QC. GraphB
QD. GraphA

i i i i
Graph A

$2

1 1 1 1 u u
$1

.... ....

$30

GraphB

.., ..

-$1

0.., $85 $95 0..,

j -$1 j -$2 -$3 Price ofUnderlying Asset (on date 1) Price of Underlying Asset (on date 1)

GraphC GraphD 1 1 1 1
J $2 j $1
$1

.... .... "..' "' 0 $95 $105 0

-$1 -$1 J: J: -$2 -$2 Price ofUnderlying Asset (on date 1) Price of Underlying Asset (on date 1)

When the delivery price of the short forward contract is $75, and the actual price at the time of delivery is
$55, there is a [profit/loss] of $0. (Use a negative sign if there is a loss and round to the nearest dollar.)

When the delivery price of the short forward contract is $75, and the actual price at the time of delivery is
$70, there is a [profit/loss] of $0. (Use a negative sign if there is a loss and round to

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