What is the npv of the asset substitution

Assignment Help Other Subject
Reference no: EM13799159

1. Your friend tells you about an arbitrage opportunity. You can buy stock for $25 in Tokyo and sell it for $25.05 in New York. You judge the opportunity cost of lost interest to be mini-mal (no more than $10). Based on previous trading, you expect it will cost you $0.02 per share to buy in Tokyo and $0.02 per share to sell in New York. There are additional expenses of $0.03 per share for such things as transfer and communications costs. You will pay someone $26 to handle the transac-tions for you. How many shares must you sell to realize an "arbitrage" opportunity that will actually yield a riskless profit?

a. You cannot realize an arbitrage profit because variable costs are greater than the per share revenue from buying and selling shares.

b. To realize a riskless arbitrage you should plan on selling enough shares to overcome lost interest and handling costs.

c. To realize a riskless arbitrage you should plan on selling enough shares to cover all variable costs.

d. none of these

2. Your assets have an equal chance of being worth either $1,600 or $800 at year's end. Your debt is $1,000 and due at the end of the year. Now suppose you substitute your current assets for riskier assets that have the same expected value but a wider dispersion. The riskier assets now have equally likely payoffs of $1,800 and $600. What is the NPV of the asset substitution?

Reference no: EM13799159

Situation interact to shape a person goals

Assume you are a supervisor. How would you work within each of these situations with your employees to increase employee motivation? How would your decisions be affected by

How strategic intent can lead to competitive advantage

Conduct a thorough and well-argued analysis of your selected organisation's strategic intent posture that provides evidence that the organisation either has, or does not hav

Develop an action plan for nurse managers

The authors identified four ethical conflicts for the nurse managers.  Identify two of these and explain the data which helped the authors to justify the particular theme. D

Key external factors-threats and opportunities

As you have studied about external and internal factors in an industry analysis. Your job is to identify only the key external factors (Threats and Opportunities) of Virtual U

Islamic extremists and terrorists threats

The United States continues to face a persistent and evolving terrorist threat from Islamic extremists, which can be definite as catastrophic terrorism because it aims to ki

Industrial valves and fluid control devices

Barbara Bright is the purchasing agent for West Valve Company. West Valve sells industrial valves and fluid control devices. One of the most popular valves is the Western, w

Potential challenges in health promotion for cancer

Critically discuss the three potential challenges in health promotion for cancer, from a sociology, psychology, education, epidemiology standpoint.

Describe a famous research study in field of psychology

Describe a famous research study in the field of psychology (refer to the links in Extra! Extra!, your readings, and the KU Library to help locate a study), and briefly descri

Reviews

Write a Review

 
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd