1. Efficient portfolios For each of the following pairs of investments, state which would always be preferred by a rational investor (assuming that these are the only investments available to the investor): a. Portfolio A, r = 18% o = 20%; portfolio B, r = 14% 0 = 20%. b. Portfolio C, r = 15% 0 = 18%; portfolio D, r = 13% 0 = 8%. c. Portfolio E, r = 14% 0 = 16%; portfolio F, r = 14% 0 = 10%.

Consider the following model of a monopolistic form, where P is the sale price of the good, MC is marginal cost of producing the good and q is quantity produced (assumed equal to quantity sold) the firm has to sell all units of the good at the same price. p=10-2q MC=2+q If the firm produces 3 units, what total revenue will it receive? a. £4 b. £6 c. £12 d. £24

4. Gursoy Furnitures sells office chairs ordered from its flagship store. It costs $100 to place an order, and the lead time is two weeks. Demand during lead time is N(40, 1.96). Gursoy Furnitures estimates that each stockout causes a loss of $50 in future goodwill. It pays $60 for each chair and sells it for $100. The annual holding a chair inventory is 30% of its purchase cost. a) Assuming that all demand is backlogged, what are the reorder point and the safety stock level? b) To meet 99% service objective, what should be the safety stock level for Type 1 Service? For Type 2 Service?

1. IfXis $5,000, R-15% and BV is $50,000, what is AE? -5000-(15%*50000) -2500 2. IfXis $25,000, R-18% and BV is $125,000, what is AE? -25000-(18 % 125000) 2500 3. Assume the firm in requirement 2 can increase x to $30,000 by instituting some cost-cutting measures. What is the new AE? -30000-(18 % 125000) 7500 4. Assume the firm in requirement 2 can divest $25,000 of unproductive capital with X falling by only $2,000. What is the new AE? -25000-2000-(18% *(125000-25000)) 5000 5. Assume the firm in requirement 2 can add a new division at a cost of $40,000, which will increase X by $7,600 per year. Would adding the new division increase AE? -25000+7600-(18% *( 125000+40000)) 2900 FALSE Assume the firm in requirement 1 can add a new division at a cost of $25,000, which will increase X by $3,500 per year. Would adding the new division increase AE? 5000+3500-(15%*50000+25000) -2750 FALSE