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Before moving out of their apartment, Nayma and Jake decided to have their carpets cleaned by Stanley Steemer, a company specializing in professional carpet cleaning. The carpet cleaners arrived on time, cleaned the carpets, and drove away in their bright yellow van; only then did the couple see that they did a good job. Nayma and Jake were unable to judge the service before they bought it, which illustrates the ________Blank of services.

A product is a good, service, or idea consisting of a(n) ________Blank that satisfy consumers’ needs and is received in exchange for money or something else of value.

The launch by Gatorade of Gatorade chews, bars, powders, shakes, and yogurt is evidence of ________Blank development.

Forward Contract ValuationSix months ago, a trader entered a long forward contract to buy gold at $1,950/oz. The current gold spot price is $2,020/oz, the risk-free rate is 4.5% (continuously compounded), and the contract has 6 months remaining. Gold has no income and negligible storage costs for this problem.(a) Calculate the current value of the forward contract to the long position.(b) Calculate the current theoretical forward price for a new 6-month gold forward.

Put-Call Parity ArbitrageA European call on a non-dividend-paying stock is priced at $11. A European put with the same strike and maturity is priced at $3. The stock price is $72, K = $65, r = 5% (continuously compounded), T = 0.5 years.(a) Verify whether put-call parity holds.(b) If it does not hold, describe the exact arbitrage strategy (what to buy, what to sell, what to invest/borrow) and calculate the risk-free profit.

Black-Scholes Put PricingPrice a European put option using the Black-Scholes model with: S0 = $85, K = $90, r = 3% (continuously compounded), σ = 25%, T = 0.75 years.Recall: p = Ke−rTN(−d2) − S0N(−d1), whered1 = [ln(S0/K) + (r + σ²/2)T] / (σ√T),   d2 = d1 − σ√T(a) Calculate d1 and d2.(b) Using N(0.05) ≈ 0.5199, N(−0.05) ≈ 0.4801, N(0.27) ≈ 0.6064, and N(−0.27) ≈ 0.3936, calculate the put price.

To reduce the beta of an equity portfolio from 1.5 to 0.7 using S&P 500 futures, a portfolio manager should take a short position in index futures.

A trader buys a call and a put on the same stock with the same strike price ($50) and expiration. The call premium is $3 and the put premium is $2.50. This strategy is called a:

CDS Valuation and Default ProbabilityA 5-year CDS on a corporate bond has a spread of 180 basis points. The assumed recovery rate is 45%.(a) Estimate the implied annual default probability.(b) If the notional is $20 million, calculate the quarterly premium payment (assuming the annual premium is split into equal quarterly installments).(c) If the reference entity defaults when the bond is worth 45% of par, what payment does the protection buyer receive on a $20 million notional?

An investor entered a long forward contract to buy a non-dividend-paying stock at $55 nine months ago. The stock now trades at $62, and the risk-free rate is 4% (continuously compounded). The contract has 3 months remaining. The value of the forward to the long position is closest to: