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The spot rate for the French franc is 0.1250 and the three-month forward rate is $0.1260. Your company is prepared to speculate that the French franc that the French franc will move to $0.1400 by the end of three months.
(a) Are the quotations given direct or indirect Paris quotations?
(b) How would the speculation be undertaken using the spot market only?
(c) How would the speculation be arranged using forward market?
(d) If your company were prepared to put $1 million at risk on the deal, what would the profit outturns be if expectations were met? Ignore all interest rate implications.
(e) How would your answer above (d) differ were you to take into account interest rate implications?
Three put options on a stock have the same expiration date and strike prices of $55, $60, and $65. The option prices are $3, $8, and $12, respectively. How should an arbitrager take advantage of the arbitrage opportunity if it exists? (Hint: Examine ..
A bond has a $1,000 par value, 14 years to maturity, and a 6% semiannual coupon and sells for $975. Assume that the yield to maturity remains at 6.27% for the next 2 years. What will the price be 2 years from today?
What additional assumptions (to the main three) are important when applying the CAPM and what are the underlying strengths and weaknesses of this application? Discuss the reliability of the model and give examples in your explanation.
Rock Hill Brewery produced revenues of $1,145,227 in 2015. It has expenses (excluding depreciation) of $812,640, depreciation of $131,335, and interest expense of $81,112. It pays an average tax rate of 34 percent. What is the firm's net income after..
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In project valuation, one of the advantages of the Payback rule is that it provides a simple way to communicate an idea of project profitability.
You are analyzing the cost of capital for a firm that is financed with 65 percent equity and 35 percent debt. The after-tax cost of debt capital is 8 percent, while the cost of equity capital is 20 percent for the firm. What is the overall cost of ca..
What is the sensitivity of your plan's market value to changes in the market interest rate?
Given a firms liabilities an increase in interest rates reduces thefirm's net worth because - difficult to keep inflation and output fromfluctuating when aggregate expenditures change because
Travis Industries plans to issue perpetual preferred stock with an $11.00 dividend. What is the cost of the preferred stock, including flotation?
“Active investing is inferior to applying passive investing using Exchange Traded Funds (ETFs) as stock markets rise.
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