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(Ignore bid-ask spreads for this problem.) Assume you are a trader with Deutsche Bank. From the quote screen on your computer terminal, you notice that Dresdner Bank is quoting USD/EUR = 0.9321 (thus $1 buys €0.9321) (Yes I know this does not follow our usual convention for the Euro as the base currency, blame the textbook I stole this question from!) and Credit Suisse is offering USD/CHF (thus $1 buys SFr1.0005). You learn that UBS is making a direct market between the Swiss franc and the euro, with a current CHF/EUR quote of 0.9216 (thus SFr1 buys €0.9216). a. Show how you can make a triangular arbitrage profit by trading at these prices. Assume you have SFr1,000,000 with which to conduct the arbitrage. b. What happens if you initially sell Swiss francs for Euros? c. What CHF/EUR price will eliminate triangular arbitrage?
There are 6 pounds of chocolate mix available, and it takes 2 pounds of chocolate mix to make a dozen cookies. Profits for these chocolate covered cookies are now $.40 instead of $.30 dozen. If the other conditions of the problem remain unchanged. Fi..
Explain why after-tax costs are utilized when computing component cost of bonds, but not preferred and common stock.
The portfolio manager of a real estate investment trust (REIT) purchased 8 parcels of land for $1 mil each exactly one year ago.
An FI has issued a one-year loan commitment of $2 million for an up-front fee of 25 basis points. The back-end fee on the unused portion of the commitment is 10 basis points. What is the expected return on the loan without taking future values into c..
Blue Crab, Inc. has determined that these bonds would sell for $902 each. What is the yield to maturity for these bonds?
Correlation, a standardized measure of how stocks perform relative to one another in different states of the economy, has a range from _______
What are some of the more common challenges or problems encountered by the firm in this regard, and what are the possible solutions?
George bought a piece of equilvalent for 35,000$. The equipment has a useful life of 10 years and a salvage value of 2,000$ at the end of its useful life. Assume that the annual interest rate is 9%. Calculate the present value of deprecation, using t..
You currently have 60% invested in Johnson and Johnson and the remainder invested in Paypal. Johnson and Johnson, Paypal, and the S&P 500 had the following realized returns: What is the beta of this portfolio? Your answer should be rounded to the ne..
When would it make sense to use a flexible budget as compared to a forecast budget? What are the differences between efficiency and effectiveness?
The Dunning Co. needs to raise $66 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. The offer price is $60 per share and the company’s underwriters ch..
The returns for the last 6 months for the portfolio and the S&P 500 have been. Find the beta using the slope method.
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