After much research on the developing economy and capital markets of the country of Otunia, your firm, GAC, has decided to include an investment in the Otunia stock market in its Emerging Markets Commingled Fund. However, GAC has not yet decided whether to invest actively or by indexing. Your opinion on the active versus indexing decision has been solicited. The following is a summary of the research findings:

Otunia’s economy is fairly well diversified across agricultural and natural resources, manufacturing (both consumer and durable goods), and a growing finance sector. Transaction costs in securities markets are relatively large in Otunia because of high commissions and government “stamp taxes” on securities trades. Accounting standards and disclosure regulations are quite detailed, resulting in wide public availability of reliable information about companies’ financial performance. 

Capital flows into and out of Otunia, and foreign ownership of Otunia securities is strictly regulated by an agency of the national government. The settlement procedures under these ownership rules often cause long delays in settling trades made by nonresidents. Senior finance officials in the government are working to deregulate capital flows and foreign ownership, but GAC’s political consultant believes that isolationist sentiment may prevent much real progress in the short run.

a. Briefly discuss aspects of the Otunia environment that favor investing actively, and aspects that favor indexing.

b. Recommend whether GAC should invest in Otunia actively or by indexing. Justify your recommendation based on the factors identified in part ( a).

The following table represents the nominal values of an item and the corresponding price index for $2007$ and $2008.$

$$\begin{array}{|c|c|c|} \hline \text { Year } & \text { Nominal Value } & \text { Price Index } \\ \hline 2007 & 38 & 112 \\ \hline 2008 & 40 & 120 \\ \hline \end{array}$$

a. Compute the inflation rate for $2008 .$

b. Compute the annual percentage change of the item in real terms.

Assume Cline & Nichols, the accounting fi rm, advises Derbyshire Seafood that its financial statement must be changed to conform to GAAP. At December 31, 2012, Derbyshire’s accounts include the following:

$$\begin{matrix} \text{Cash................................................................ } & \text{\$ 50,000 }\\ \text{Short-term trading securities, at cost...............} & \text{20,000 }\\ \text{Accounts receivable......................................... } & \text{41,000 }\\ \text{Inventory.........................................................} & \text{57,000}\\ \text{Prepaid expenses.............................................} & \text{16,000 }\\ \text{Total current assets.....................................} & \text{\$184,000 }\\ \text{Accounts payable............................................} & \text{ \$ 60,000 }\\ \text{Other current liabilities...................................} & \text{40,000 }\\ \text{Total current liabilities................................} & \text{\$100,000}\\ \end{matrix}$$

The accounting firm advised Derbyshire of the following: Cash includes $19,000 that is deposited in a compensating balance account that will be tied up until 2014. The market value of the trading securities is$12,000. Derbyshire purchased the trading securities a couple of weeks ago. Derbyshire has been using the direct write-off method to account for uncollectible receivables. During 2012, Derbyshire wrote off bad receivables of $6,500. Cline & Nichols determines that uncollectible-account expense should be 3% of service revenue, which totaled$630,000 in 2012. The aging of Derbyshire’s receivables at year-end indicated uncollectibles of $12,400. Derbyshire reported net income of$94,000 for 2012. Restate Derbyshire’s current accounts to conform to GAAP. (Challenge). Compute Derbyshire’s current ratio and quick (acid-test) ratio both before and after your corrections. Determine Derbyshire’s correct net income for 2012. (Challenge)

Tennis elbow is a painful condition that afflicts many tennis players at some time. A number of different treatments are used for this condition, including rest, heat, and anti-inflammatory medications. A clinical trial was conducted among 87 participants, comparing the effectiveness of Motrin (generic name, ibuprofen), a widely used anti-inflammatory agent, vs. placebo. Participants received both drug and placebo, but the order of administration of the two was determined by randomization. Specifically, approximately half the participants (group A) received an initial 3-week course of Motrin, while the other participants (group B) received an initial 3-week course of placebo. After the 3-week period, participants were given a 2-week washout period during which they received no study medication. The purpose of the washout period was to eliminate any residual biological effect of the first-course medication. After the washout period, a second period of active drug administration began, with group A participants receiving 3 weeks of placebo, and group $B$ participants receiving 3 weeks of Motrin. At the end of each active drug period as well as at the end of the washout period, participants were asked to rate their degree of pain compared with baseline (before the beginning of the first active drug period). The goal of the study was to compare the degree of pain while on Motrin vs. the degree of pain while on a placebo. This type of study is called a cross-over design, which we discuss in more detail in Chapter 13.

Degree of pain vs. baseline was measured on a 1-6 scale, with 1 being "worse than baseline" and 6 being "completely improved." The comparison was made in four different ways: (1) during maximum activity, (2) 12 hours following maximum activity, (3) during the average day, and (4) by overall impression of drug efficacy. The data are given in Data Set TENNIS2.DAT with documentation in TENNIS2. DOC, both at www.cengagebrain.com.

Compare degree of pain while on Motrin with degree of pain during the average day.

Suppose we have a relation $R(x, y, z)$, where the pair of attributes $x$ and $y$ together form the key. Attribute $x$ ranges from 1 to 100 , and $y$ ranges from 1 to 1000 . For each $x$ there are records with 100 different values of $y$, and for each $y$ there are records with 10 different values of $x$. Note that there are thus 10,000 records in $R$. We wish to use a multiple-key index that will help us to answer queries of the form

SELECT z
FROM R
WHERE x = C AND y = D;

where $C$ and $D$ are constants. Assume that blocks can hold ten key-pointer pairs, and we wish to create dense indexes at each level, perhaps with sparse higher-level indexes above them, so that each index starts from a single block. Also assume that initially all index and data blocks are on disk.

a) How many disk I/O's are necessary to answer a query of the above form if the first index is on $x$ ?

b) How many disk I/O's are necessary to answer a query of the above form if the first index is on $y$ ?

c) Suppose you were allowed to buffer 11 blocks in memory at all times. Which blocks would you choose, and would you make $x$ or $y$ the first index, if you wanted to minimize the number of additional disk I/O's needed?

Which insect repellents protect best against mosquitoes? Consumer Reports (June 2000) tested 14 products that all claim to be effective mosquito repellents. Each product was categorized as either lotion/cream or aerosol/spray. The cost of the product (in dollars) was divided by the amount of the repellent needed to cover exposed areas of the skin (about $1 / 3$ ounce) to obtain a cost-per-use value. Efficacy was measured as the maximum number of hours of protection (in half-hour increments) when human testers exposed their arms to 200 mosquitoes. The data from the report are listed in the table.

d. Execute the test, part $\mathbf{c}$, and give the appropriate conclusion. Use $\alpha=.10$.

The body mass index b of a person varies directly with the person’s weight w and inversely with the square of the person’s height h. A person who is 1.6 meters tall and weighs 51.2 kilograms has a body mass index of 20. Suppose two people weigh the same, but the height of one person is 10% greater than the height of the other person. Compare the body mass indices of the two people.

Suppose that at time t = 0 there are P sub 0 individuals who have disease X, and suppose that a certain model for the spread of the disease predicts that the disease will spread at the rate of r(t) individuals per day. Write a formula for the number of individuals who will have disease X after x days.

Label each of the following scenarios in which there are problems enacting and applying fiscal policy as being an example of either recognition lag, administrative lag, or operational lag.
a. To fight a recession, Congress has passed a bill to increase infrastructure spending—but the legally required environmental-impact statement for each new project will take at least two years to complete before any building can begin.
b. Distracted by a war that is going badly, inflation reaches $8$ percent before politicians take notice.
c. A sudden recession is recognized by politicians, but it takes many months of political deal making before a stimulus bill is finally approved.
d. To fight a recession, the president orders federal agencies to get rid of petty regulations that burden private businesses—but the federal agencies begin by spending a year developing a set of regulations on how to remove petty regulations.

Following is a portion of the investments footnote from MetLife lnc.'s 2017 10-K report. Investment earnings are a crucial component of the financial performance of insurance companies such as MetLife, and investments comprise a large part of its assets. MetLife accounts for its bond investments as available-for-sale securities.

Fixed Maturity Securities Available-for-Sale

The following tables present the fixed maturity securities AFS by sector.

$$\begin{array}{rc} \begin{array}{r} \hspace{90pt}\text{December 31, 2017} \hspace{90pt}\\ \hline \end{array}\\ \begin{array}{ccc} \begin{array}{lr} & \text{Cost or}\\ & \text{Amortized}\\ \text{(in millions)} & \text{Cost}\\ \text{ Fixed Maturity Securities: }\\ \text{ U.S. corporate }& \$ 76,005 \\ \text{ Foreign government }& 55,351 \\ \text{ Foreign corporate }& 52,409 \\ \text{ U.S. government and agency }& 43,446 \\ \text{ RMBS }& 27,846 \\ \text{ State and political subdivision }& 10,752 \\ \text{ ABS }& 12,213 \\ \text{ CMBS }& \underline{8,047} \\ \quad \text{ Total fixed maturity securities }& \underline{\underline{\$286,069}} \end{array} & \begin{array}{cc} \\ \begin{array}{c} \hspace{20pt}\text{Gross Unrealized} \hspace{20pt}\\ \hline \end{array}\\ \begin{array}{rrr} & \text{Temporary} & \text{OTTI}\\ \text{Gains} & \text{Losses} & \text{Losses}\\ \\ \$ 7007 & \$ 351 & \$ - \\ 6,495 & 312 & - \\ 3,836 & 676 & - \\ 4,227 & 279 & - \\ 1,145 & 233 & (42) \\ 1,717 & 13 & 1 \\ 116 & 39 & (1) \\ \underline{\hspace{15pt}222} & \underline{\hspace{15pt}42} & \underline{\hspace{15pt}-} \\ \underline{\underline{\$24,765}} & \underline{\underline{\$1 ,945}} & \underline{\underline{\$(42)}} \end{array}\\ \\ \end{array} & \begin{array}{r} \\ \text{Estimated}\\ \text{Fair Value}\\ \\ \$82661\\ 61,534\\ 55,569\\ 47,394\\ 28,800\\ 12,455\\ 12,291\\ \underline{8,227}\\ \underline{\underline{\$308,931}} \end{array} \end{array} \end{array}$$

$$\begin{array}{rc} \begin{array}{r} \hspace{90pt}\text{December 31, 2016} \hspace{90pt}\\ \hline \end{array}\\ \begin{array}{ccc} \begin{array}{lr} & \text{Cost or}\\ & \text{Amortized}\\ \text{(in millions)} & \text{Cost}\\ \text{ Fixed Maturity Securities: }\\ \text{ U.S. corporate }& \$ 73280 \\ \text{ Foreign government }& 49,864 \\ \text{ Foreign corporate }& 49,308 \\ \text{ U.S. government and agency }& 41,294 \\ \text{ RMBS }& 28,393 \\ \text{ State and political subdivision }& 10,977 \\ \text{ ABS }& 11,266 \\ \text{ CMBS }& \underline{7,294} \\ \quad \text{ Total fixed maturity securities }& \underline{\underline{\$271,676}} \end{array} & \begin{array}{cc} \\ \begin{array}{c} \hspace{20pt}\text{Gross Unrealized} \hspace{20pt}\\ \hline \end{array}\\ \begin{array}{rrr} & \text{Temporary} & \text{OTTI}\\ \text{Gains} & \text{Losses} & \text{Losses}\\ \\ \$ 6027 & \$ 764 & \$- \\ 6,485 & 373 & - \\ 2,926 & 1,572 & (1) \\ 3,682 & 543 & - \\ 1,039 & 410 & (10) \\ 1,340 & 85 & 1 \\ 90 & 128 & 3 \\ \underline{\hspace{15pt}237} & \underline{\hspace{15pt}71} & \underline{\hspace{15pt}-} \\ \underline{\underline{\$21,826}} & \underline{\underline{\$3,946}} & \underline{\underline{\hspace{15pt}\$(7)}} \end{array}\\ \\ \end{array} & \begin{array}{r} \\ \text{Estimated}\\ \text{Fair Value}\\ \\ \$78,543 \\ 55,976 \\ 50,663 \\ 44,433 \\ 29,032 \\ 12,231 \\ 11,225 \\ \underline{7,460} \\ \underline{\underline{\$289,563}} \end{array} \end{array} \end{array}$$

At what amount does MetLife report its bond investments on its balance sheets for 2017 and 2016?

The convex surface of a plano-convex lens has an absolute value of radius of curvature of 40 mm. The index of refraction for the glass of which the lens is made is 1.5. (a) What is the focal length of the lens? (b) You take some measurements and determine that the 40-mm radius of curvature is correct but the focal length is 100 mm instead of the value calculated in part a. What must the index of refraction for the glass be?

Choose the most appropriate answer for given of the following question.
When the cause of pneumonia is an underlying disease such as HIV, the codes should be sequenced
a. pneumonia first, underlying disease second.
b. pneumonia only.
c. underlying disease only.
d. underlying disease first, pneumonia second.

Calculate the limiting angle of resolution for the eye, assuming a pupil diameter of 2.00 mm, a wavelength of 500 nm in air, and an index of refraction for the eye of 1.33.

Following is a portion of the investments footnote from MetLife lnc.'s 2017 10-K report. Investment earnings are a crucial component of the financial performance of insurance companies such as MetLife, and investments comprise a large part of its assets. MetLife accounts for its bond investments as available-for-sale securities.

Fixed Maturity Securities Available-for-Sale

The following tables present the fixed maturity securities AFS by sector.

$$\begin{array}{rc} \begin{array}{r} \hspace{90pt}\text{December 31, 2017} \hspace{90pt}\\ \hline \end{array}\\ \begin{array}{ccc} \begin{array}{lr} & \text{Cost or}\\ & \text{Amortized}\\ \text{(in millions)} & \text{Cost}\\ \text{ Fixed Maturity Securities: }\\ \text{ U.S. corporate }& \$ 76,005 \\ \text{ Foreign government }& 55,351 \\ \text{ Foreign corporate }& 52,409 \\ \text{ U.S. government and agency }& 43,446 \\ \text{ RMBS }& 27,846 \\ \text{ State and political subdivision }& 10,752 \\ \text{ ABS }& 12,213 \\ \text{ CMBS }& \underline{8,047} \\ \quad \text{ Total fixed maturity securities }& \underline{\underline{\$286,069}} \end{array} & \begin{array}{cc} \\ \begin{array}{c} \hspace{20pt}\text{Gross Unrealized} \hspace{20pt}\\ \hline \end{array}\\ \begin{array}{rrr} & \text{Temporary} & \text{OTTI}\\ \text{Gains} & \text{Losses} & \text{Losses}\\ \\ \$ 7007 & \$ 351 & \$ - \\ 6,495 & 312 & - \\ 3,836 & 676 & - \\ 4,227 & 279 & - \\ 1,145 & 233 & (42) \\ 1,717 & 13 & 1 \\ 116 & 39 & (1) \\ \underline{\hspace{15pt}222} & \underline{\hspace{15pt}42} & \underline{\hspace{15pt}-} \\ \underline{\underline{\$24,765}} & \underline{\underline{\$1 ,945}} & \underline{\underline{\$(42)}} \end{array}\\ \\ \end{array} & \begin{array}{r} \\ \text{Estimated}\\ \text{Fair Value}\\ \\ \$82661\\ 61,534\\ 55,569\\ 47,394\\ 28,800\\ 12,455\\ 12,291\\ \underline{8,227}\\ \underline{\underline{\$308,931}} \end{array} \end{array} \end{array}$$

$$\begin{array}{rc} \begin{array}{r} \hspace{90pt}\text{December 31, 2016} \hspace{90pt}\\ \hline \end{array}\\ \begin{array}{ccc} \begin{array}{lr} & \text{Cost or}\\ & \text{Amortized}\\ \text{(in millions)} & \text{Cost}\\ \text{ Fixed Maturity Securities: }\\ \text{ U.S. corporate }& \$ 73280 \\ \text{ Foreign government }& 49,864 \\ \text{ Foreign corporate }& 49,308 \\ \text{ U.S. government and agency }& 41,294 \\ \text{ RMBS }& 28,393 \\ \text{ State and political subdivision }& 10,977 \\ \text{ ABS }& 11,266 \\ \text{ CMBS }& \underline{7,294} \\ \quad \text{ Total fixed maturity securities }& \underline{\underline{\$271,676}} \end{array} & \begin{array}{cc} \\ \begin{array}{c} \hspace{20pt}\text{Gross Unrealized} \hspace{20pt}\\ \hline \end{array}\\ \begin{array}{rrr} & \text{Temporary} & \text{OTTI}\\ \text{Gains} & \text{Losses} & \text{Losses}\\ \\ \$ 6027 & \$ 764 & \$- \\ 6,485 & 373 & - \\ 2,926 & 1,572 & (1) \\ 3,682 & 543 & - \\ 1,039 & 410 & (10) \\ 1,340 & 85 & 1 \\ 90 & 128 & 3 \\ \underline{\hspace{15pt}237} & \underline{\hspace{15pt}71} & \underline{\hspace{15pt}-} \\ \underline{\underline{\$21,826}} & \underline{\underline{\$3,946}} & \underline{\underline{\hspace{15pt}\$(7)}} \end{array}\\ \\ \end{array} & \begin{array}{r} \\ \text{Estimated}\\ \text{Fair Value}\\ \\ \$78,543 \\ 55,976 \\ 50,663 \\ 44,433 \\ 29,032 \\ 12,231 \\ 11,225 \\ \underline{7,460} \\ \underline{\underline{\$289,563}} \end{array} \end{array} \end{array}$$

What is the difference between realized and unrealized gains and losses? Are realized gains and losses treated differently in the income statement than unrealized gains and losses? MetLife's 2017 pre-tax income was $3,536 million. What is the maximum amount MetLife could have increased pre-tax income by selling available-for-sale securities on the last day of 2017?