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MGMT 3100
HOMEWORK ASSIGNMENT #3
NOTE1: Questions 150 = 4 points each, Questions 51100 = 13 points each
NOTE3: YOU ONLY NEED TO TURN IN YOUR SCANTRONS FOR THIS ONE
PROBLEM 1 (harder)
You invested $10,000 in a certain stock on January 1
st
, 2007. By examining past movements of
this stock and checking up with your broker, you estimated that the annual return for the stock (call
it X and express it as a percentage), is normally distributed with mean = 10% and standard
deviation 4%. On December 31
st
, 2007, your investment will have grown to $10,000(1 + X) and
you will sell the stock. Because you are in the 33% bracket (I’m assuming you guys have money),
you will owe the IRS 33% of this profit.
**Question 51.
What is the approximate probability that you will have to pay the IRS at least
$400?
a) 0%
b) 70.2%
c) 29.8%
d) 33%
e) none of the above
*Question 1.
What is the lowest approximate rate of return (X), which you are 90% sure you will
NOT make?
a) 0%
b) 15.13%
c) 10%
d) 14%
e) none of the above
**Question 52.
What is the lowest approximate
after tax
profit (in $) which you are 90% sure you
will NOT exceed?
a) $1513
b) $1000
c) $1013
d) $600
e) none of the above
PROBLEM 2
The Fabulous Fabrics Company runs a manufacturing facility that produces bolts of woolen fabric.
A certain amount of other fibers are also woven into the wool. The proportion of those other fibers
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 Winter '08
 Camateros

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