Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 22, Problem 5CRCT
Probabilities [LO3] Suppose you are flipping a fair coin in a coin-flipping contest and have flipped eight heads in a row. What is the probability of flipping a head on your next coin flip? Suppose you flipped a head on your ninth toss. What is the probability of flipping a head on your tenth toss?
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A game of chance offers the following odds and payoffs. Each play of the game costs $200, so the net profit per play is the payoff less
$200.
Probability
0.30
0.60
0.10
Payoff
$400
300
0
Net Profit
$200
100
-200
a-1. What is the expected cash payoff?
Note: Round your answer to the nearest whole dollar amount.
a-2. What is the expected rate of return?
Note: Enter your answer as a percent rounded to the nearest whole number.
b-1. What is the variance of the expected returns?
Note: In the calculation, use the percentage values, not the decimal values for the rates of return. Do not round intermediate
calculations. Round your answer to the nearest whole number.
b-2. What is the standard deviation of the expected returns?
Note: Enter your answer as a percent rounded to 2 decimal places.
a-1. Expected cash payoff
a-2. Expected rate of return
b-1. Variance
b-2. Standard deviation
$
300
50 %
%
QUESTION 11
The discounting of the future is assumed to be exponential. What does behavioral finance have to say about this assumption? What is hyperbolic discounting? Explain
II. PROBLEMS
Suppose that the economy has the following money supply and demand equations:
Money Supply: M = 8000
Money Demand: M= 10,000 – 40,000r
where money is in billions of dollars and interest rates, r, is written as a decimal
(e.g., an interest rate of 10% would be written as .1 in the equation).
A. Determine the equilibrium interest rate and quantity of money.
B. What will happen in the money market if the interest rate is currently 10%?
What is the amount of excess supply of or excess demand for money?
C. Show in graph that at this interest rate (10%) there is disequilibrium in the
money market.
2. Assume that a particular bank has excess reserves of Php800,000 and checkable
deposits of Php1,500,000. If the reserve ratio is 20%, what is the size of the bank's
actual reserves?
3. Suppose that GRAB Bank is a newly created bank in your hometown. Consider the
following transactions:
Owners of the bank sold shares of stocks to the public (which includes owners'
equity) amounting to…
Chapter 22 Solutions
Fundamentals of Corporate Finance
Ch. 22.2 - Prob. 22.2ACQCh. 22.2 - Prob. 22.2BCQCh. 22.2 - Prob. 22.2CCQCh. 22.3 - What is frame dependence? How is it likely to be...Ch. 22.3 - Prob. 22.3BCQCh. 22.4 - What is the affect heuristic? How is it likely to...Ch. 22.4 - Prob. 22.4BCQCh. 22.4 - Prob. 22.4CCQCh. 22.5 - Prob. 22.5ACQCh. 22.5 - Prob. 22.5BCQ
Ch. 22.6 - Prob. 22.6ACQCh. 22.6 - Prob. 22.6BCQCh. 22 - Cognitive errors are best explained as errors in...Ch. 22 - Prob. 22.2CTFCh. 22 - Prob. 22.5CTFCh. 22 - Prob. 1CRCTCh. 22 - Prob. 2CRCTCh. 22 - Frame Dependence [LO2] How can frame dependence...Ch. 22 - Prob. 4CRCTCh. 22 - Probabilities [LO3] Suppose you are flipping a...Ch. 22 - Prob. 6CRCTCh. 22 - Prob. 7CRCTCh. 22 - Prob. 8CRCTCh. 22 - Prob. 9CRCTCh. 22 - Prob. 10CRCTCh. 22 - Your 401 (k) Account at SS Air You have been at...Ch. 22 - Your 401 (k) Account at SS Air You have been at...Ch. 22 - Prob. 3M
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