is the ability to influence the setting of prices. Buyer power refers to the ability of customers of the industry to influence the price and terms of purchase. The bargaining power of customers is also described as the market of outputs. The ability of customers to put the firm under pressure‚ which also affects the customer’s sensitivity to price changes. Bargaining power of buyers occurs when leverage is given to the buyer and demand for lower prices‚ increased quality and more services are made
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Price fixing assignment: 1. Why is price fixing an offense? Price fixing my cause market failures and distortions as it harms competition in a free market. This in turn adversely affects economic efficiency and consumer welfare. In India‚ price fixing and other such activities that have an adverse effect on competition are offense under Competition Act‚2002. In US‚ price fixing can be prosecuted as a criminal federal offense under section 1 of Sherman Antitrust Act. 2. What are the implications
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avoid losing the $30 million development cost by simply letting the license expire. Notice that the license is analogous to a call option: It gives the company the right to buy something (in this case‚ software for the new cell phones) at a fixed price ($30 million) at any time during the next year. The license gives the company a real option‚ because the underlying asset (the software) is a real asset and not a financial asset. • Risk Management Suppose a company plans to issue $400 million
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Keller Case 1. To analyze the profit and loss possibilities inherent in the option investment strategies‚ please perform the following analyses for call and put options on Lotus’s common stock that mature in February 1994 and that have an exercise price of $55 per share. a. Compute net profits and losses per share (actual dollar profit and losses‚ not rates of return) at expiration (February 19‚ 1994) for the following investment strategies: Buying a call option on Lotus’s stock; Writing a call
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US IPOs between 1996 and 2000‚ executives received stock options with an exercise price set equal to the IPO offer price (rather than a price determined by the market). Among firms with such “IPO options”‚ 58 percent of top executives receive a net gain from underpricing‚ meaning the gain from IPO options exceeds the loss from the dilution of their pre-IPO shareholdings. If executives can influence the IPO offer price‚ we expect a positive relation between these IPO options and underpricing. Alternatively
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is the future stock price of Telstar‚ so the stock price must increase to at least 37.23 at the end of 5th year to get the same amount of the cash compensation and if the stock price where to stay below 35‚ Sally’ option would be worth nothing. The stock‚ which pays no dividend and is not expected to pay one in the foreseeable future‚ is trading at 18.75. It seems significant difference between the exercise price and the spot price. As shown in Exhibit 2‚ Telstar stock price has increased higher
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can be used for risk management‚ not just for speculation. • Puts can be used as insurance against stock price declines. • Protective puts lock in a minimum portfolio value. • The cost of the insurance is the put premium. • Purchase stock and write calls against it. • Call writer gives up any stock value above X in return for the initial premium. • If you planned to sell the stock when the price rises
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issuer transformed its annual fixed-rate yen payments into dollar-denominated LIBOR-bases payments. This is represented by the left side transaction of the above figure. 2. At maturity‚ the issuer would redeem the bonds from the investor at a price tied to the Nikkei. If the Nikkei fell since the bonds were issued‚ the issuer would pay less than par to redeem the bonds. Thus‚ it would be as if the issuer sold bonds with the final principal payments at par but also bought a put option on the Nikkei
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published an option valuation formula that today is known as the Black-Scholes model. It has become the standard method of pricing options. The Black-Scholes model is a tool for equity options pricing. Options traders compare the prevailing option price in the exchange against the theoretical value derived by the Black-Scholes Model in order to determine if a particular option contract is over or under valued‚ hence assisting them in their options trading decision. This model is based on following
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year of service (cliff-vesting)‚ and have an exercise price of $21. Subsequent to the awards being granted‚ the stock price has fallen significantly. On January 1‚ 2008‚ Murray decreased the exercise price on the stock options to $12. This downward adjustment to the exercise price was made in order to ensure that the options continue to provide intended motivation benefit to employees. However‚ in addition to the reduction in the exercise price‚ Murray also changed the vesting terms‚ such that
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