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Suppose the expected exchange rate of the yen in terms of Canadian dollars is E e CAD/Y en = 0.0106 and that the spot price of of the yen in terms of Canadian dollars is ECAD/Y en = 0.01. Next, suppose that currently the annual interest rate in Canada is 2%, while the annual interest rate in Japan is 1%. Is there an arbitrage opportunity here? If so, explain exactly how you would take advantage of this situation to make profits. To answer this question assumed that there are no transactions costs and DO NOT use the approximation of the uncovered interest parity to answer this problem (use the exact formula).
Charu Khanna received a Form 1099-B showing the following stock transactions and basis during 2015: Calculate Charu’s net capital gain or loss using Schedule D and Form 8949.
Stock XYZ pays dividends of $2 every three months, namely at T1 = 2/12, T2 = 5/12, T3 = 8/12, . . .. Consider a forward contract on XYZ with maturity T = 9/12, i.e 9 months. If S0 = 200, F = 200 and r = 0.04, construct an arbitrage strategy to exploi..
You are considering an investment that costs $152,000 and has projected cash flows of $71,800, $86,900, and -$11,200 for years 1 to 3, respectively. If the required rate of return is 15.5 percent, should you accept the investment based solely on the ..
Mac Industries' free cash flow last year was $ 1million (i.e., FCFo = $1 million). You project the company's free cash flow to grow 20 percent this year (i.e., FCF1 = $1.2 million) and 15 percent next year. After two years its free cash flow is expec..
We've just spent time talking in the course about both technical and fundamental investing. Which makes more sense to you and why? There is no correct answer ... plenty of very smart and successful people are on both sides of the argument.
Rex is an achievement-oriented individual. His firm always uses him during time crunches, as he is one of the most dependable members of his team. He sets goals that lead him to demonstrate high levels of performance. In this scenario, which of the f..
What is the company’s federal income tax bill for the year? Assume that the firm receives an additional $40,000 of interest income from the bonds it owns. What is the tax on this interest income?
Acme Services’ CFO is considering whether to take on a new project that has average risk. She has collected the following information: • The company has outstanding bonds that mature in 26 years. The bonds have a face value of $1,000, an annual coupo..
What appears on the screen when you place the mouse pointer under text that was corrected by AutoCorrect? Which button do you click to show formatting marks in a document? The first time you save a document, which dialog box appears? What happens whe..
BDJ Co. wants to issue new 25-year bonds for some much-needed expansion projects. The company currently has 7.8 percent coupon bonds on the market that sell for $1,125, make semiannual payments, and mature in 25 years. What coupon rate should the com..
Amarillo Parts is considering purchasing a small firm in the same line of business. The purchase would be financed by either the sale of common stock or by a bond issue. What is the degree of financial leverage for each plan at $7,000,000 of EBIT? Wh..
Beth is planning to buy a Pentium-based PC for rental purposes. She has calculated that her expected cash flows from the investment for the next five years would be as shown below. If she earns an annual interest rate of 9.75%, what will be the value..
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