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An arbitrager at Deutsche Bank notices that the yield on Brazilian Real 6-month risk-free bills is 5.5% per annum and the yield on U.S. 6-month T-bills is 7% per annum. The arbitrager also observes that the spot exchange rate is $0.6507/BRL and 6-month forward exchange rate is $0.6617/BRL. Assume that the spread in the borrowing and lending rates in either currency is zero.
Given the above quotes, compare the covered yield in BRL with the nominal yield in dollar and infer whether a covered interest arbitrage opportunity exists and what does it imply for funds flow due to arbitrage.
What transactions will the arbitrageur undertake to realize arbitrage profits in dollars net of transaction cost? Write all the steps clearly and show your calculations in each step. Assume that the bank has allowed a transaction size of $10 million or its BRL equivalent at the current spot rate. Also assume that the transaction cost is 0.2% of the transaction size to be deducted from the gross arbitrage profits at the end of 6-month period.
Suppose the nominal interest rates stay at the levels quoted above, what should be the no-arbitrage annualized forward premium/discount on BRL against $?
Assume a stock selling for $44.89 has a dividend yield of 3.1 percent and a PE ratio of 20.1. What is the earnings per share (EPS) for the company?
Rozetta Manufacturing Company (RMC) is considering the purchase of a new equipment to replace the old one. The old equipment was purchased 5 years ago at a cost of $20,000, and it is being depreciated on a straight-line basis to a zero salvage value ..
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Find the weighted average cost of capital for a firm whose tax rate is 35%. Debt: 8,500 7.2% coupon bonds outstanding, $1000 par value, 25 years to maturity, selling for 118% pf par; the bonds make semi-annual payments.
You have just put your house up for sale. The agent tells you that two offers have been made: (1) 400,000 now and 400,000 in 2 years; and, (2) 287,500 now, 237,500 in 1 year and 275,000 in 2 years. Your agent says that one offer seems “just as good” ..
Discuss the following topic - Should trade restrictions be used to influence human rights issues
The annual effective interest rate is 12%. A ten-year continuous annuity makes payments totalling $30 during the first year, $40 during the second year, $50 during the third year, and so on. Within each year the payments are level. Calculate the accu..
The American Baker’s Association reports that annual sales of bakery goods last year rose 15 percent, driven by a 50 percent increase in the demand for bran muffins. Most of the increase was attributed to a report that diets rich in bran help prevent..
Accounting Review journal article (set as one of your readings this semester and available on UTSonline 'Course Documents') "Accruals and the Prediction of Future Cash Flows" Barth, Cram & Nelson.
A parent decides to buy a two bedroom condo for $65,000 by putting 10% down and financing the rest for 15 years at an annual rate of 3.5%. What is the monthly payment? One bedroom is rented out to a roommate for $400 a month (payment received at the ..
Last year the return on total assets in Jeffrey Company was 9.5%. The total assets were 1.9 million at the beginning of the year and 2.1 million at the end of the year. The tax rate was 30%, interest expense totalled $100 thousand, and sales were $4...
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