1.

The hedge ratio is the correlation between spot price and future price

Ans: TRUE

The hedge rstio compares the amount of position of a future contract/ cash commodity which is hedged to the entire amount of future contract/ cash commodity

It is calculated as the product of the correlation coefficient or standard deviation between the changes in the spot and futures prices.

The hedge ratio = hedged position / total position.

2.

Problem 1. Cassandra is 19 years old. Her parents claim her as a dependent on their tax form, and her earned income this year was $13,000. Does she need to file a tax return?

A) Yes, because her income exceeded the limit for not having to file.

B) No, because her income was under $13,200.

C) Yes, because she is over age 18.

D) No, because her parents claim her as a dependent.

Solution : A) Yes, because her income exceeded the limit for not having to file.

Explanation to the answer :

To qualify as your dependent, your child must:

• Be a citizen or legal resident;
• Not file a joint return (if married);
• Be your son, daughter, stepchild, eligible foster child, sibling, half sibling, step sibling, adopted child, or an offspring of any of them;
• Be under age 19 at the end of the tax year, or under age 24 if a full-time student, or any age if permanently and totally disabled;
• Live with you for more than half the year (some exceptions apply);
• Rely on you for at least half their support; and
• Be claimed as a dependent only by you

When Your Child Must File

Four tests determine whether a dependent child must file a federal income tax return. A child who meets any one of these tests in 2019, must file:

• If the child only has unearned income (from investment interest, gains, et al.) above $1,100,
• If the child only has earned income above $12,200,
• If the child has both earned any unearned income, and the child's gross income (earned plus unearned) is greater than either $12,200 or his or her earned income plus $350, whichever is less. (Essentially, this means a dependent child must file if the child's unearned income is more than $350 and he or she has any earned income, although there is a minimum threshold of $1,100 gross income).
• The child's net earnings from self-employment are $400 or more.

Additional rules apply for children who are blind, who owe Social Security and Medicare taxes on tips or wages not reported to or withheld by the employer, or those who receive wages from churches exempt from employer Social Security and Medicare taxes.

Problem 2. Your employer offers dental insurance for $590 per year pretax through your employee benefit plan. However, your employer does not contribute toward the cost, and your marginal tax rate will be 22 %. Buying the dental insurance through payroll deduction
A) does not offer any financial advantage to you.

B) will cost you 22% of $590, so the net cost is $720.

C) will save you $130 in taxes, so the net cost is $460.

D) will cost you 22 % of $590, so you will save $460.

Solution : C) will save you $130 in taxes, so the net cost is $460.

Explanation to the answer :

• Dental insurance premiums can be tax deductible under certain conditions.
• The insurance must be for procedures that prevent or alleviate dental disease.
• Premiums for insurance that covers cosmetic procedures, such as teeth whitening and veneers, are not tax deductible.

For most taxpayers the cost of medical and dental insurance premiums paid during the tax year are deductible on form 1040 Schedule A as a medical and dental expense.? Only the total of all qualifying medical and dental expenses, including insurance premiums, that when combined exceed 10% of the taxpayer’s adjusted gross income (AGI) in 2020 (7.5% in 2019), will actually be included in the total of all itemized deductions.

3.

Everest incs preferred stock price is $31.15

Dividend per quarter is $ 1.70

rate of return per quarter= 1.70/31.15=5.46%

Effective annual return = (1+5.457464%)^4-1=23.6828%

Effective annual rate of dividend is 23.68

 

4.

Projected Operating Income Statement
	for 5 years
	Particulars	Year 1	Year 2	Year 3	Year 4	Year 5
a	Average rent per Sqft	$                 15.00	$              15.30	$              15.61	$                  15.92	$                  16.24
b	Area Sq Ft	100,000	100,000	100,000	100,000	100,000
c	Vacancy Allowance	8%	8%	8%	10%	10%
d	Insurance rate for RC $40 per sqft	$                 0.020	$            0.0204	$            0.0208	$                0.0212	$                0.0216
	Operating Income Statement
e	Potentional Gross Income (a*b)	$          1,500,000	$       1,530,000	$       1,560,600	$           1,591,812	$           1,623,648
f	Less Vacancy Allowance =e*c=	(120,000)	(122,400)	(124,848)	(159,181)	(162,365)
g	Effective Gross Income	1,380,000	1,407,600	1,435,752	1,432,631	1,461,283
	Operating Expense
h	Cleaning Expense (5% of Net revenue)	(69,000)	(70,380)	(71,788)	(71,632)	(73,064)
i	Insurance for RC 40sqft	(80,000)	(81,600)	(83,232)	(84,897)	(86,595)
j	Management & Maintenance (11% of net rev)	(151,800)	(154,836)	(157,933)	(157,589)	(160,741)
k	Reserve for replacement	(50,000)	(50,000)	(50,000)	(50,000)	(50,000)
l	Property Tax ($0.10 per $100 of RC )	(4,000)	(4,000)	(4,000)	(4,000)	(4,000)
m	Total operating Expenses	(354,800)	(360,816)	(366,952)	(368,118)	(374,400)
n	Estimated Net Operating Income	1,025,200	1,046,784	1,068,800	1,064,513	1,086,883