# some krazy kwestions

Hey guys, I’m posting some questions below that I’ve been having major trouble with…any insight into what I’m missing in any of them is much appreciated! I decided to post them all together instead of making multiple threads. All questions are from Schweser Vol. 2, btw. 1.“1f0 = 6% 1f1 = 7.3% 1f2 = ? 1f3 = 8.9% 4-year spot rate = 7.5% What is if2?” The answer is calculated as: [(1.075^4) = (1.06) x (1.073) x (1 + x) x (1.089)] and then you solve for X. My question is, given how these are FORWARD rates, why isn’t the calculation [(1.06) x (1.06x1.073) x (1.06 x 1.073 x [1 + x])…etc? ========================================== 2. "A manufacturing company reports research costs and losses on sales of a business segment on its income statement. which of these expenses would be included in operating expenses? a) neither b) only one c) both answer: C. Why is the gain/loss on a discontinued operation that has been sold an OPERATING EXPENSE? Unless this isn’t counted as a discontinued operation for some reason? The book states “The gains and losses related to discontinued operations re reported seperately on the income statement, net of tax, below income from continuing operations. These activities are no longer included as part of the company’s continuing operations” ============================================ 3. “Lyon has pretax earnings of \$150m in its first year of operation. PRETAX INCOME INCLUDED: -\$25m of interest income from tax free muni bonds -\$35m of accrued warranty expense that is not yet deductible - \$15m of deductible depreciation expense that is not yet accrued. - tax rate is 40%” What is the company’s income tax payable? ANS = 150m - 25m + 35m - 15m. Why is the 15m subtracted here? =============================================== 4. “A monopsonist maximizes profit where the MC of labour equals the MRP. because the monopsonist is the only buyer of labour, the monopsonist pays a wage rate lower than the marginal cost of labour. if a minimum wage is imposed above this wage rate, the monosonist will be *forced to pay the higher rate and have higher employment on the upward-sloping supply curve of labor. the minimum wage increases both wage rate and labor supplied.” Could someone please explain what this means, I’m having lots of trouble with monopsonies. Why would the monopsonit be forced to have higher employment if it is forced to pay a higher wage to its workers? Wouldn’t it hire less workers? And why does a monopsony hire less then the efficient amount of workers in general? ============================================== 5. “If the number of employed and the working age population remain the same, what are the effects of a decrease in the labour force on the unemployment rate and the labour force participation rate?” a) both will increase b) both will decrease c) one will increase and one will decrease. Answer: A. But… unemp rate: unemp/labour force. if labour force decreases, this ratio goes up. LFPR: labour force/working age pop. if labour force decreases, this ratio goes DOWN. What am I missing here?

Any help on ANY of these? I’d really appreciate it!

1. “Lyon has pretax earnings of \$150m in its first year of operation. PRETAX INCOME INCLUDED: -\$25m of interest income from tax free muni bonds -\$35m of accrued warranty expense that is not yet deductible - \$15m of deductible depreciation expense that is not yet accrued. - tax rate is 40%” What is the company’s income tax payable? ANS = 150m - 25m + 35m - 15m. Why is the 15m subtracted here? ---------------- Depreciation is a tax write off
1. “If the number of employed and the working age population remain the same, what are the effects of a decrease in the labour force on the unemployment rate and the labour force participation rate?” a) both will increase b) both will decrease c) one will increase and one will decrease. Answer: A. But… unemp rate: unemp/labour force. if labour force decreases, this ratio goes up. LFPR: labour force/working age pop. if labour force decreases, this ratio goes DOWN. What am I missing here? ---- For 5 think the answer should be B Since number of employed stay the same and labor force decreases, no of unemployed decrease too. hence unemp rate goes DOWN as well as LFPR

^I see what you mean…but according to the book the answer is A…any thoughts as to why?

bump

come on guys please, someone’s gotta know something about one of these questions!

ill take a stab at 4 but ive been going for about 10 hours, think of the Monopsony as having the Wage rate on the Y axis and the Quantity of labor on the X axis. since it is the only supplier of the good (labor) it can discriminate against the laborers in paying the lower wage rate that is not market clearing and take advantage of the surplus of labor below the demand curve and above the wage rate. higher surplus for monopsonist, lower for laborers. MR curve for monopolist is a point halfway between 0 and the X intercept of demand curve, not efficient for normal markets. If there were competing companies, they would drive the wage rate up until labor supply intersects labor demand and the market clears. Think Walmart, this is an argument against the company moving into small areas and driving down prices until retail firms go out of business , then supplying below market wages because they can. Think Unions as the counter party to these, negotiating wages so that no labor will be supplied below the market clearing wage rate. Hope this helps , i know it is a little convoluted, i havent studied these for 7 years.

Oh I think I understand…thanks! Any help for the others?