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1. Suppose the spot and six-month forward rates on the Denmark krone are Kr 4.18 and kr. 4.30 respectively. The annual risk-free rate in the United States is 6 percent, and the annual risk-free rate in Denmark is 7 percent.
a) Is there an arbitrage opportunity here? If so, show how would you exploit it?
b) What must the six-month forward rate be to prevent arbitrage?
c) Are exchange rate changes necessarily good or bad for a particular company?
2. A stock sells for $95. A call option on the stock has an exercise price of $90 and expires in 3 months. If the interest rate is 0.15 and the standard deviation of the stock's return is 0.30.
a) Calculate the call using the Black-Scholes model. Show all workings.
b) What would be the price of a put with an exercise price of $120 and the same time until expiration? Show all workings.
the market rate of interest will sell for a discount and that a vanilla bond which has a coupon rate above the market rate of interest will see for a premium. What kind of bond or loan will sell at its par value regardless of what happens to the m..
The exchange rate between the US dollar and the Swiss Franc is SF1.3=$1, and the exchange rate betweent he dollar and the British pound is BP1=$1.40. What is the cross rate between francs and pounds.
Your company is thinking about acquiring another corporation. You have two choices—the cost of each choice is $250,000. You cannot spend more than that, so acquiring both corporations is not an option. The following are your critical data:
negative growth stockswinton mining has seen its business slowly wind down. it recently paid a dividend of 1.80 per
Calculate the net present value of the proposed change, that is, the net benefit or net loss in present vaklue terms of the proposed changeover.
The current price of a $1,000 par bond is $1,101.72 and coupons are paid semi-annually in the amount of $38.50. What is the coupon rate of these bonds?
Explain how the idea of a brewing device for a small apartment became a startup enterprise. What did you learn from that bit of entrepreneurial history
The salvage value at the end of the 10 years is expected to be $1,500,000, which is solely the value of the land. The firm's tax rate is 40 percent, and the firm's discount rate is 15 percent. Based on a discounted cash-flow analysis, should the in..
One year ago, you puchased 94 shares of ABC stock for $20.9 per share. During the year, you received a dividend of $3.2 per share. Today, you sold all your shares for $25.3. What are the percentage return on your investment
a project has an initial cost of 40000 expected net cash inflows of 9000 per year for 7 years and a cost of capital of
Lawrence Industries' most recent annual dividend was $1.80 per share (D0=$1.80), and the firm's required return is 11%. Find the market value of Lawrence's shares when: Dividends are expected to grow at 8% annually for 3 years, followed by a 5% con..
You used Dell as a representative company to estimate the cost of capital for GCI. What are some of the potential problems with this approach in this situation? What improvements might you suggest?
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