Event is mostly diversifiable risk or market risk

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Reference no: EM132036845

1. Which of the following event is mostly diversifiable risk or market risk? Why?

a. Caterpillar faces a prolonged labor strike.

b. Walmart retail business is being undermined by the giant Amazon.

c. The Federal Reserve suddenly increases short-term interest rates.

d. Emerging economies like China and others are on the path of slow economic growth. China is our number 2 trading partner.

2. The price of a big mac in USA is US $4.50 and the price of a big mac in Germany is Euro 3.50. According to the Purchasing Power Parity (PPP), the spot exchange rate US $/Euro is:

a.) 1.2857 b.) 0.7778 c.) 1.4287 d.) 0.7001 please show work

3. A record company bought the rights to an artist’s music catalogue and they expect to receive royalty payments of $35,000 per year forever (a perpetuity). What is this cash flow worth? Assume interest rates are 6.5%.

$ 548,240

$ 493,240

$ 538,462

$ 41,760

Reference no: EM132036845

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