Week 5

Which of the following is true?

• Hospitality businesses are characterized by seasonality, perishability, intangibility, simultaneity, and inseparability.

• Hospitality businesses should focus on shareholders’ value only.

• Perishability refers to the fact that food does not last long.

• Intangibility refers to the product components that cannot be see directly.

Which of the following is not true?

• Financial instruments typically serve as critical tools to secure financial resources in hospitality businesses.

• Financial instruments come in two forms: primary and derivative instruments.

• Primary financial instruments are instruments valued by the markets directly. Common examples include futures, swap, and options.

• Primary financial instruments are also called cash instruments and they are used widely in the hospitality industry.

The stock market is also known as the primary market when a stock is created and sold to the public for the first time (this is also known as an initial public offering or IPO).

• True

• False

The stock market is the only marketplace where value is created.

• True

• False

A bond is a fixed income instrument delineating a loan made by a creditor to a debtor. It typically contains specified terms that dictate the loan term and interest rates.

• True

• False

If a restaurant chain secured a loan with variable interest rates and is concerned about the rising interest rates, the chain would prefer to have the choice of making fixed interest payments. Which of the following is most likely the choice for the chain?

• Option

• Future contract

• Swap contract

• Forward contract

If an investor purchases a call option of Marriott International Class A Common Stock (MAR) with a strike price of $110 by paying $100. The stock is traded at $128 (the spot price) on the option’s expiration date. If the investor buys 100 shares, what is the net profit, excluding transaction costs?

• $1,800

• $1,500

• $1,600

• $1,700