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Suppose the annual interest rate is 3.5% in U.S. and 2.5% in euro, and that the spot exchange rate is S($/euro) = 1.2405 and the forward exchange rate with 12-month maturity is F12($/euro) = 1.2635. Assume you are a U.S. trader and can borrow up to $1,000,000 (or euro1,000,000). Answer the following questions.
a. Is there an arbitrage opportunity according to the Interest Rate Parity based on the above information? (show your work!)
b. Show the strategy to capture the arbitrage profit by setting up a transaction table. Listing the required transactions and cash flows (including cash flow signs and currency symbols). Your arbitrage profit should be in U.S. dollar.
Explain how U.S. investors could use covered interest arbitrage to lock in a higher yield than 9 percent. What would be their yield? Explain how the spot and forward rates of the pound would change as covered interest arbitrage occurs.
After spending $11,000 on client-development, you have just been offered a big production contract by a new client.
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Bond J has a coupon rate of 4.8 percent. Bond S has a coupon rate of 14.8 percent. Both bonds have eleven years to maturity, make semiannual payments, and have a YTM of 10.6 percent. Requirement 1: If interest rates suddenly rise by 2 percent, what i..
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At the beginning of last year Thomas purchased 100 shares of the Web.com Fund at an NAV of ?$ 15.07 and automatically reinvested all distributions. As a result of? reinvesting, Thomas ended the year with 116 shares of the fund with an NAV of $17.79. ..
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Karen makes a sequence of annual deposits into an account paying an effective rate of interest of 5.5 percent. what is their present value now?
The? price/earnings ratio:
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