Tim Cook receives compensation in the amount 1 million dollars in cash and 10,000 Apple Call options (Employee stock options – each call option represents 100 shares, as usual). These are the only options that he owns in Apple. It is currently Dec 1st, 2025 and the options all expire on Dec 31st, 2025.  The current stock price for Apple is 100 dollars and all the options have an exercise price of 100 (S=100, X=100). Tim Cook is evaluating a project with the following terms:             – 25% chance the project goes well and increases the stock price to 110.             – 50% chance the project does ok and the stock price increases to 101.             – 25% chance the project is a disaster and the stock price plummets to 68.   a) Given his options holdings, what will Tim Cook’s decision be? What is his expected payout if he does not take the project on? What is the expected payout in his options (expected dollar amount he will get) should he take on the project?  Will he take the project or not take on the project?  (5 points)   b) If he decides to do the project, what are the expected payouts to shareholders (expected dollar amount the stock will go up or down)?   c) If you were designing the pay package for Tim Cook (i.e. picking what form his compensation takes) what are two ways you could design his compensation so that his interests are aligned with those of the shareholders?

We live in a world where there are many risky assets and a risk free asset. Describe the efficient frontier on the mean standard deviation graph – what does it mean to be on the efficient frontier. Explain in detail how each point on the efficient frontier is constructed (i.e. if you told Excel Solver to construct the EF for you, what is it doing behind the scenes to construct the curve). (4 points)

EXTRA CREDIT: Your portfolio manager tells you that they delivered 15% last year. You follow up with the portfolio manager and ask them for two years of performance data which they give you. You take the data from year t-2 to year t-1 and run the following regression: Ri = Rf  + βmRm + βsmbRsmb + βhmlRhml   And you find that:           βm = 1.10      βsmb = 1.2      βhml = 0.80 Using the following returns from year t-1 to year 0: Rf =  0         Rm = .12      Rsmb =  .01      Rhml =   .02      Did the portfolio manager actually do well over yr t-1 to 0-  what were their FF adjusted returns? According to the Beta coefficients, what types of risk is the manager primarily taking?  (3 points)      

The optimal risky portfolio can be identified by finding ____________. I. the minimum variance point on the efficient frontierII. the maximum return security  III. the tangency point of the capital market line and the efficient frontierIV. the line with the steepest slope that connects the risk free rate to the efficient frontier 

Ray Dalio’s main reason to dislike the pod shop method of structuring a hedge fund is because:

The risk-free rate, average returns, standard deviations, and betas for three funds and the S&P 500 are given below. What is the Sharpe measure for portfolio C? 

If the simple CAPM is valid, is the situation detailed below possible? Explain in a few short sentences.  (4 points)   Portfolio                                              Expected Return                                             Std Dev Risk-free                                             10                                                                    0% Market                                                30%                                                                 28% A                                                         22%                                                                 20% _________________________________________________________________________ 

Investors who want to liquidate their holdings in a closed-end fund may _________________.

You pay $21,600 to the Laramie Fund, which has a NAV of $18 per share at the beginning of the year. The fund deducted a front-end load of 3%. The securities in the fund increased in value by 7% during the year. The fund’s expense ratio is 2% and is deducted from year-end asset values. What is your rate of return on the fund if you sell your shares at the end of the year? 

Describe how essential and non-essential amino acids are different.