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The Jennette Corporation, a firm based in Mt. Pleasant, South Carolina, has an account payable with a British firm coming due in 180 days. The payable requires Jennette to pay £200,000.Winthrop Jennette, the firm's founder and CEO, is an astute manager. He has asked his CFO, Artis Montgomery, to advise him on the various options for dealing with the exchange risk inherent in this payable. He wishes to know the expected dollar cost of (1) A forward hedge. (2) A money market hedge. (3) Remaining unhedged. The following information is available to Artis. The spot rate of the pound today is $1.50. The current 180-day forward rate of the pound is $1.47. Interest rates are as follows:
a. What is the expected dollar cost of the forward hedge?b. What is the expected dollar cost of the money market hedge?c. What is the expected dollar cost of remaining unhedged?d. Which alternative do you recommend? What are the risks associated with thisrecommendation?
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Suppose a U.S. government bond will pay $1,000 four years from now. If the going interest rate on 4-year government bonds is 4.5%, how much is the bond worth today?
One year ago, Alpha Supply issued 15-year bonds at par. The bonds have a coupon rate of 6.5 percent and pay interest annually. Today, the market rate of interest on these bonds is 7.2 percent. How does the price of these bonds today compare to the..
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Today, at maturity, the exchange rate is 1.324 Swiss Francs per dollar. What was the annualized rate of return to the Swiss investor?
What will be the nominal rate of return on a perpetual preferred stock with a $100 par value, a stated dividend of 11% of par, and a current market price of (a) $52.00, (b) $76.00, (c) $118.00, and (d) $138.00? Round your answers to two decimal pl..
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