Enter into the derivative contract for a cost of $60, for the expected payoff is 0.50 * $100 +
0 .50 * $50 = $75. That is a 25% return on your investment in one year, greater than the 5% that could be made by investing the $60 at interest. This is an example of the investment consequences of inconsistent probabilities. The present value of the contract should be $75/1.05 = $71.43. Thus, an arbitrage opportunity is present. On an expected value basis, you can buy an asset worth $71.43 for only $60.

The cash cycle begins once the inventory is paid for. The period of time between the receipt of inventory and payment for it is just a part of the operating cycle.

Assume X denotes the random variable for the number of days that the stock price increases.
X ~ Bin(30, 0.3) therefore, E(X) = 30 x 0.3 = 9 and V(X) = 30 x 0.3 x (1 - 0.3) = 6.3.

Cash payments for purchases = Cost of Goods Sold + Increase in Inventory or - Decrease in inventory AND + Decrease in Accounts Payable or - Increase in Accounts Payable. $560,000 + 14,000 +
$ 2,000 = $576,000, cash paid for merchandise.

In a monopolistic competition firms face a downward sloping demand curve as well as a downward sloping marginal revenue curve. A firm will set its margin cost equal to marginal revenue for profit maximization.