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A currency dealer has good credit and can borrow either $1,000,000 or 800,000 pounds for one year. The one-year interest rate in the U.S. is i$= 5% and in the euro zone the one-year interest rate is ipound= 4%. The spot exchange rate is $1.25/pound an the one-year forward exchange rate is $1.40/pound.
a. Show how to realize a certain profit via covered interest arbitrage.
b. How do interest rates, the spot currency market, and the forward currency market adjust to produce an equilibrium?
Revenue recognition. Read the notes to the financial statements. For each company, what is the company's revenue recognition policy? Is the company aggressive in revenue recognition? What is the level of receivables compared to sales? Analyze the all..
You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago for $1.42 million in anticipation of using it as a..
Laura Drake wishes to estimate the value of an asset expected to provide cash inflows of $3000 per year at the end of years 1 through 4 and $15000 at the end of year 5. Her research indicates that she must earn 10% on low risk assets, 15% on average ..
What is the relation of assets to: cash and cash equivalents, inventory, account receivable? What is the relation of Total Liabilities and Shareholder Equity to: long term debt, equity, retained earning?
You can find spot and futures prices for a variety of equity indexes on www.wsj.com (or in the Datastream database available in the library). Pick one and check whether it is fairly priced. You will need to do some detective work to find the dividend..
You just purchased a corporate bond with a 4.125% coupon rate that has 17 years left until it matures. Interest on the bond is paid twice per year. You paid 4% above face value for the bond. What is your YTM on this bond?
Calculating Real Returns and Rosk Premiums [LO1] For problem 9, suppose the average inflation rate over this period was 3.5 percent and the average T-bill ate over the period was 4.2 percent. What was the average real return on Crash-n-Burn's stock?
Calvani, Inc., has a cash cycle of 39.5 days, an operating cycle of 55 days, and an inventory period of 23 days. The company reported cost of goods sold in the amount of $355,000, and credit sales were $578,000. What is the company’s average balance ..
You are saving for your retirement. You have decided that starting today you will deposit 5 percent of your annual salary in an account which will earn 10 percent per year. Your salary today is $70,000, and it is expected to increase at 4 percent per..
Barry, Hank, and Babe form a company named Long Ball Investments, hoping to find that elusive home run stock. A new clothing company by the name of Major League Apparel has caught their eye. Major League Apparel has two classes of stock authorized: C..
Determine your cash flow as a percent of the notional principal at each payment date under this arrangement. Assume for simplicity that each period is 180 days and that there are 360 days in the year.
Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 12 years to maturity that is quoted at 90 percent of face value. The issue makes semiannual payments and has an embedded cost of 11 percent annually. Re..
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