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Assume you sell a European call option on AUD100,000 (AUD = Australian Dollar). The strike price is X(USD/AUD)=0.72 (USD = U.S. Dollar), the maturity is one year, and the premium is 5 cents per AUD. Find the maximum loss and the break-even point S(USD/AUD). Use 4 decimals for the exchange rates and 2 decimals for currency amounts.
Robert wants to withdraw $100,000 a year for 30 years after he retires. He will probably work for 30 years and earn 7 interest during the whole time. How much does Robert have to contribute to her pension fund each year so she can retire on $100,000 ..
An investment offers a 12 percent total return over the coming year. Bill Bernanke thinks the total real return on this investment will be only 7.3 percent. What does Bill believe the inflation rate will be over the next year?
Cold Goose Metal Works Inc.'s income statement reports data for its first year of operation. The firm's CEO would like sales to increase 25% next year. Cold Goose is able to achieve this level of increased sales, but its interest cost increase from 1..
Suppose that a firm's common equity is selling for $150 in the market, that the firm has $115 million in Net Income, and the firm has 20 million common shares outstanding. Finally, the firm faces a moderately high cost of common equity of 14%. What..
Florida Power and Light has committed to building a solar power plant. JoAnne, an IE working for FPL, has been tasked with evaluating the three current designs. FPL uses an interest rate of 10% and a 20-year horizon. A field of “flat solar panels ang..
Even though most corporate bonds in the United States make coupon payments semi-annually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 25 years to maturity, and a coupon ..
Is there credit risk in an interest rate swap with an intermediary bank serving as the swap dealer? Describe when default losses might arise and which party is at risk. Explain how credit risk can be reduced.
Qin has just graduated from the Harvard with a BA in mathematics and must decide whether to start working now or to get a Masters in Financial Engineering (MFE). In either case, he intends to retire 40 years from today. An MFE requires an expenditure..
Suppose a corporation can change its depreciation method so that its tax payments will decrease by $5,000 this year but increase by $5,000 next year
Great Wall Pizzeria issued 4-year bonds one year ago at a coupon rate of 5.2 percent. If the YTM on these bonds is 7.6 percent, what is the current bond price?
Jackson Street Repair’s stock currently sells for $55 per share. The market requires a 12% return on the firm’s stock. If the company maintains a constant 5% growth rate in dividends, what was the most recent dividend per share paid on the stock?
Explain how you would measure country risk in international lending. Can you get a precise statistical measure?
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