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Consider the following information available in Diamond Bank located in a neighborhood near you.
Spot Rate for the British Pound Sterling $1.60
90 – day forward rate of the pound $1.59
90 – day UK interest rate 4%
90 – day U.S. interest rate 3%
(a) Given this information, would it be a prudent strategy for Diamond Bank to engage in covered interest arbitrage? Explain.
(b) If covered interest arbitrage is profitable how much profit would the Bank earn if it uses $1,000,000?
(c) Briefly discuss the realignment process that will yield interest rate parity.
What will be the earnings per share after the repurchase if the economy booms?
Gregg recently won $1,000,000 in the lottery. He was offered a lump sum payment of $1,000,000 today or an annuity of $80,000 per year for 20 years. Use this information to answer questions 4, 5 and 6. Round your answers to the nearest whole dollar. W..
A firm just paid $2.00 on its common stock and expects to continue paying dividends, which are expected to grow 5% each year, from now to infinity. If the required rate of return for the stock is 9%, then the value of the stock is:
What is the current price of the bond if the comparable rate of interest is 8 percent?
Choose a stock that is publicly traded and explain how you think the future potential of the stock warrants the price it sells at today – please explain and support with terms and concepts from this class material?
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For which of the following firms would the constant perpetual growth model be applicable?
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Suppose you currently have taxable income of $50,000 per year. How much do you pay annually in taxes?
An interest rate that is compounded monthly, but is expressed as if the rate were compounded annually, is called the _____ rate
Consider the following sequence of prices for a currency futures contract. Each contact involves 10,000 units of the foreign currency. The initial and maintenance margin requirements are USD 800 and USD 500, respectively.
Sadik Industries must install $1 million of new machinery in its Texas plant. What is the net advantage of leasing? Should Sadik take the lease?
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