The Advertising Manager for Roadside Restaurants, Inc

question 22

Multiple Choice

The advertising manager for Roadside Restaurants, Inc., needs to decide whether to spend this month's budget for advertising on print media, television, or a mixture of the two. She estimates that the cost per thousand "hits" (readers or viewers) will vary depending upon the success of the new cable television network she plans to use, as follows:

For what range of probability that the new cable network will be successful will she select the television media strategy?

• A)0-0.4
• B)0-0.55
• C)0.4-0.7
• D)0.55-1
• E)0.7-1

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Definitions:

Hedge

An investment made to reduce the risk of adverse price movements in an asset.

Speculative Forward Contract

A financial derivative used to speculate on the future price of an asset, involving an agreement to buy or sell the asset at a future date for a price determined today.

Fair Value Hedge

A risk management technique that uses financial instruments to mitigate the risk associated with changes in the fair value of an asset or liability.

Firm Commitment

An agreement between a buyer and an underwriter in which the underwriter guarantees the sale of a certain amount of securities.