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Purchasing Power Parity Problems
1. In Australia, a Big Mac sells for 4.56 Australian dollars and in U.S., it sells for US$4.07. The current exchange rate is AUD0.92/USD. How much is the Big Mac in Australia overpriced or underpriced? How much is the Australian dollar overvalued or undervalued? (Absolute PPP)
2. You are planning a ski vacation to Mt. Blanc in Chamonix, France, one year from now. You are negotiating over the rental of a chateau. The chateau's owner wishes to preserve his real income against both inflation and exchange rate changes, and so the present weekly rent of €9,800 (Christmas season) will be adjusted upwards or downwards for any change in the French cost of living between now and then. You are basing your budgeting on purchasing power parity (PPP). French inflation is expected to average 3.5% for the coming year, while U.S. dollar inflation is expected to be 2.5%. The current spot rate is $1.3620/€. How much is the euro expected to appreciate or depreciate in one year? What would be the expected rate of euro next year? (Relative PPP)
What is the relationship between present value and future value? What is the difference between an ordinary annuity and an annuity due? Give examples of each.
Weights used in calculating the WACC
What is Jacque’s C$ profit or loss over the year? When Jacque starts this trade, she is hoping that the C$ doesn’t.
Mark and Alicia Story, recently married, have decided that they want to buy a $600,000 house. They are planning to give 20% down payment and finance the rest with a mortgage. What are the monthly payments for the 4 traditional mortgages? If the Story..
The average length of a flight by regional airlines in the United States has been reported as 464 miles.
A levered firm has a debt-to-equity ratio of .6 & an equity beta of 1.42. What would be the beta of the firm if it switched to an all-equity financial structure
If the cost of capital is 7% what is this stream of cash flows worth today?
Record the journal entries required on December 31, 2014 to close all temporary accounts for governmental activities at the government-wide level.
What is the formula for the delta of the option as a function of (S0, U, D, R, VU, VD)? Consider a call option for an asset with the following parameters
The company also paid out dividends of $184 million. What was the company's dividend payout ratio?
What is the best estimate of these bonds' remaining life? what coupon rate would it have to set in order to issue new bonds at par?
An immunization strategy protects a portfolio from:
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