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Question 1059034: A salesperson finds that her sales average 30 cases per store when she visits 20 stores a week. Each time she visits an additional store per week, the average sales per store decreases by 1 case. How many stores should she visit each week if she wants to maximize her sales?
Click here to see answer by Boreal(15235)  |
Question 1059034: A salesperson finds that her sales average 30 cases per store when she visits 20 stores a week. Each time she visits an additional store per week, the average sales per store decreases by 1 case. How many stores should she visit each week if she wants to maximize her sales?
Click here to see answer by addingup(3677)  |
Question 1059034: A salesperson finds that her sales average 30 cases per store when she visits 20 stores a week. Each time she visits an additional store per week, the average sales per store decreases by 1 case. How many stores should she visit each week if she wants to maximize her sales?
Click here to see answer by josmiceli(19441)  |
Question 1059117: You recently graduated and your job search brought you to Blues Airline. Since you felt the company’s business was headed skyward, you accepted the offer. As you are finishing your employment paperwork John Smith, who works in the Finance Department, stops by to inform you about the organizations pension plan.
Pension plans are tax deferred; any deposits made into the plan are deducted from current income, so no current taxes are paid on the money. Assume your salary will be $30,000 per year. If you contribute $1,500 to the plan, you will pay taxes on $28,500 of income. No taxes will be due on any capital gains or plan income while you are invested into the plan, but you will pay taxes when you withdraw the money at retirement. You can contribute up to 5% of your salary. As is common, the company also has a 5% match program, meaning they will match your contribution dollar for dollar up to 5% of total salary, in order to receive match, you must contribute.
The company’s pension plan has several options for investment, most of which are mutual funds. When you purchase shares in a mutual fund you are actually purchasing partial ownership of the fund’s assets, similar to purchasing shares of stock in a company. The return of the fund is the weighted average of the return of the assets owned by the fund, minus any expenses. The largest expense is typically the management fee paid to the fund manager who makes all of the investment decisions for the fund. The company uses AA Financial Services as its administrator.
John Smith explains that the retirement investment options offered for employees are as follows:
- Company stock. One option is stock in the organization, the company is currently privately owned. The price you would pay for the stock is based on an annual appraisal, less a 20% discount. When you interviewed with the owners, they informed you that the company stock was expected to be publicly sold in 3 to 5 years. If you needed to sell the stock before it became publicly traded, the company would buy it back at the then-current appraised value.
- AA’s S&P/TSX Index Fund. This mutual fund tracks the S&P/TSX. Stocks in this fund are weighted exactly the same as they are in the S&P/TSX. This means that the fund’s return is approximately the return on S&P/TSX, minus expenses. With an index fund, the manager is not required to research stocks and make investment decisions, so fund expenses are usually low. The AA S&P/TSX Index Fund charges expenses of 0.20 percent of assets per year.
- AA Small-Cap Fund. This fund primarily invests in small capitalization stocks. As such, the returns of the find are more volatile. The fund can also invest 10% of its assets in companies based outside of the U.S. This fund charges 1.70 percent of assets in expenses per year.
- AA Large-Company Stock Fund. This fund invests primarily in large capitalization stocks of companies based in the U.S. The fund is managed by Alice Anderson and has outperformed the market in 6 of the last 8 years. The fund charges 1.5 percent in expenses.
- AA Bond Fund. This fund invests in long-term corporate bonds issued by U.S Companies. The fund is restricted to investments in bonds with an investment grade credit rating. This fund charges 1.40 percent in expenses.
- AA Money Market Fund. This fund invests in short-term high credit quality debt instruments, which include Treasury bills. As such the return on money market funds is only slightly higher than the return on Treasury bills. Because of the credit quality and short-term nature of the investments, there is only a very slight risk of negative return. The fund charges 0.60 percent in expenses.
1. What advantages/disadvantages do the mutual funds offer compared to company stock for your retirement?
2. Notice that, for every dollar you invest, Blues Airline also invests a dollar. What return on your investment does this represent? What does your answer suggest about matching programs?
3. Assume you decide you should invest at least part of your money in large capitalization stocks of companies based in Canada. What are the advantages and disadvantages of choosing the AA Large-Company Stock Fund compared to the AA S&P/TSX Index Fund?
4. The returns on AA Small-Cap Fund are the most volatile of all the mutual funds offered in the pension plan. Why would you ever want to invest in this fund? When you examine the expenses of the mutual funds, you will notice that this fund also has the highest expenses. Will this affect your decision to invest in this fund?
5. You are considering an asset allocation that will consist of 10% in the money market account, 40% in the Small-Stock Fund, which has a beta of 1.40, and 50% in the S&P/TSX Index Fund which has a beta of 1.0. What is the beta of your portfolio?
6. A measure of risk-adjusted performance that is often used in practice is the Sharpe ratio. The Sharpe ratio is calculated as the risk premium of an asset divided by its standard deviation.
a. The standard deviations and returns for the funds over the past 10 years are listed in figure 1 below. Assuming a risk free rate of 4%, calculate the Sharpe ratio for each of these. In broad terms what do you suppose the Sharpe ratio is intended to measure?
b. Assume that the expected return and standard deviation of the company stock will be the same as the expected returns and standard deviation for small-company stocks given in figure 2 below. Calculate the Sharpe ratio for the company stock.
c. Is our assumption about the risk and return on the company’s stock reasonable? Why or Why not?
Figure 1
10 yr Annual Return Standard Deviation
AA S&P/TSX %11.48 %15.82
AA Small-Cap %16.68 %19.64
AA Large-Company%11.85 %16.01
AA Bond Fund %9.67 %10.83
Figure 2
Average Return Standard Deviation
CA Large Stocks %11.7 %15.9
US Large Stocks %12.8 %18.1
CA Small Stocks %14 %22.5
Long Term Bonds %7.4 %9.4
Treasury Bills %4.9 %4.1
Inflation %3.9 %3.5
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Question 1059235: The dimensions of a rectangular lawn are 20 yards by 10 yards. The lawn mower cuts a 1 yard wide strip as you mow around the lawn toward the center. The area of the lawn left to mow after you go around 3 times is how many square yards
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