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Show work. A portfolio manager expects to receive funds from a new client in 30 days. These funds are to be invested in a basket of equities. He decides to take a long position in 30-day forward contracts on the S&P 500 stock index to hedge against an increase in equity prices. The index is currently at 2,440. The continuously compounded dividend yield on the index is 1.90%, and the continuously-compounded risk-free rate is 2%. Assuming a 365-day year, what is the forward price on the index?
A. $2,440.00 B. $2,440.20 C. $2,440.80 D. none of the above.
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The interest rate on a two-year treasury security is 4.7%, and the interest rate on a one-year treasury security is 6.06%. What is the expected interest rate on a one-year treasury security one year from now? State you answer as a percentage to two d..
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Primrose Corp has $19 million of sales, $3 million of inventories, $2 million of receivables, and $3 million of payables. Its cost of goods sold is 70% of sales, and it finances working capital with bank loans at an 7% rate. By how much would pre-tax..
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Projects a and b are mutually exclusive. project a costs 10,000 and is expected to generate cash inflows of 5,000 for 4 years. project b costs 10,000 and is expected to generate a single cash flow in year 4 of 23,000. the cost of capital is 12% which..
In the model of exchange rate and output determination, explain how to derive the relationship between output and nominal exchange rates in both the output and the asset markets. Plot these relationships in one graph and explain the equilibrium condi..
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