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1. Suppose that the spot exchange rate between the Australian Dollar and the US Dollar is 0.8065 USD per AUD. The risk free rate of interest in Australia is 2% and the risk free rate is the US is 2.5%. The six-month forward exchange rate is 0.8099. What arbitrage opportunity is possible?
2. Free cash flow for an all-equity firm was $4 million last year. It is expected to grow by 20% in the current year, at a 15% rate annually for the five years after that, and then assume a more normal 4% growth rate thereafter (forever). The firm’s cost of equity is 10%. What is the value of the firm?
A 5-year, 8 percent, annual, coupon bond is currently selling at par. What will happen to the bond’s price if the market rate of return increases to 9 percent? remain constant increase Answer cannot be determined based on the information provided. de..
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the pr..
When plotting variables on a scatter diagram, the variables plotted on the Y-axis is the horizontal axis and the X-axis is the vertical axis.
Calculate the return on equity (ROE) for a sample of 20 banks for the year before the Sarbanes-Oxley Act was enacted. For the same sample of banks, calculate the ROE for the year following the enactment of the Sarbanes-Oxley Act
We have the knowledge that the risk free rate, the risk premium and the beta are .05, .07 and 1.5 respectively. Additionally, we spend $2.8 million at the beginning to do a marketing campaign and we supplement it 3 years later with a $ 2.3 million ex..
Fort Collins Company retired $800,000 of 7% bonds payable at 97 on June 30, 2012, two years before the bonds matured. The bond book value on June 30, 2012 is $770,000, and bond interest is paid up to the date of retirement. What is the gain/loss on t..
A friend says she expects to earn 13.50% on her portfolio with a beta of 1.50. You have a two-asset portfolio including stock x and a risk free security. The expected return of stock x is 10.50 and the beta is 1.10. The expected return on the risk fr..
You are bearish on AT&T stocks and decide to sell short 100 shares at the current market price of $15 per share. The initial margin requirement is 50% and the maintenance margin requirement is 30%. How high can the price of the stock go before you ge..
Industrial Products has both common and noncumulative preferred stock outstanding. The dividends on these stocks are $1.10 per quarter per share of common and $2.25 per quarter per share of preferred. What is the minimum amount the firm must pay per ..
On August 2, a securities dealer, Ms. Cindy Zaicko, responsible for a $10 million bond portfolio is concerned that interest rates are expected to be highly volatile over the next 3 months. The fund manager decides to use Treasury bond futures to hedg..
Mudvayne, Inc., is trying to determine its cost of debt. The fi rm has a debt issue outstanding with 18 years to maturity that is quoted at 107 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually...
How will ross and Jamie lee make provisions for adding the babies to their health insurance policy now that they have arrived?
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