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Suppose the Federal Reserve purchases $10 billion worth of foreign currency in exchange for deposit accounts at the Federal Reserve. Show the changes that result from this transaction on the Fed's balance sheet.
Explain the ideas of Systematic, Un-systematic Risk and their relationship with CAPM. What kind of portfolios will have their expected rates of returns (versus their “beta’s”) located on the Security Market Line?
When property is disposed of, what factors influence the amount of the deductible loss? Define. What is the importance, if any, of passive activity? Compare and contrast the computational rules for deducting casualty losses on personal-use property w..
The current price of a non-dividend paying stock is $30. Use a two-step tree to value an American put option on the stock with a strike price of $32 that expires in 3 months. Each step is 1.5 months, the risk free rate is 8% per annum with continuous..
Assume that a new project will annually generate revenues of $1,900,000 and cash expenses (including both fixed and variable costs) $900,000, while increasing depreciation by $230,000 per year. In addition the firm’s tax rate is 36%. Calculate the op..
As you increase (decrease) the length of time involved, what happens to the present value of an annuity? Explain why. What happens to the future value of an annuity if you increase (decrease) the interest rate? Explain why. What does continuous compo..
Brenda Callaway wants to borrow money to purchase some new appliances. The bank offered her a $1000 loan at 8 percent simple interest and an upfront service charge of $45. If she is required to pay the entire loan back at the end of one year, what is..
Chuck Brown will receive from his investment cash flows of $3,175, $3,470, and $3,840 at the end of years 1, 2 and 3 respectively. If he can earn 7.5 percent on any investment that he makes, what is the future value of his investment cash flows at th..
WC Inc. has a $10 million (face value), 10-year bond issue selling for 99 percent of par that pays an annual coupon of 9 percent. What would be WC's before-tax component cost of debt? Please show all work and formulas.
US Bank has purchased a 7 million one-year Canadian dollar loan that pays 8.5% interest annually. The spot rate of U.S. dollars for Canadian dollars is 0.70. What is the deposit amount in Euros? What is the interest expense in dollars?
Malfoy Corporation paid a $3.00 dividend per share this year. Its total earnings per share were $6.00. Malfoy’s book equity is $60 million. There are 1 million shares outstanding and the discount rate for Malfoy stock is 12%.(a) What is the growth ra..
We will derive a two-state put option value in this problem. Data: S0 = 290; X = 300; 1 + r = 1.1. The two possibilities for ST are 330 and 180. a. The range of S is 150 while that of P is 120 across the two states. What is the hedge ratio of the put..
Consider two projects with the following cash flows: Project S is a 4 year project with initial (time 0) cash outflow of 3000 and time 1 through 4 cash inflows of 1500, 1200, 800 and 300 respectively. Project L is a 4 year project with initial (time ..
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