Annual interest rate and exchange rate

Assignment Help Financial Management
Reference no: EM131446727

At the start of 2006, the annual interest rate was 5 percent in the United States and 2.8 percent in Japan. The exchange rate was 95 yen per dollar at the time. Mr. Jorus, who is the manager of a Bermuda-based hedge fund, thought that the substantial interest advantage associated with investing in the United States relative to investing in Japan was not likely to be offset by the decline of the dollar against the yen. He thus concluded that it might be a good idea to borrow in Japan and invest in the United States. At the start of 2006, in fact, he borrowed ¥2,000,000,000 for one year and invested in the United States. At the end of 2006, the exchange rate became 105 yen per dollar. How much profit did Mr. Jorus make in dollar terms?

Reference no: EM131446727

Questions Cloud

What is the duration of a two-year bond : What is the duration of a two-year bond that pays an annual coupon of 11.9 percent and has a current yield to maturity of 13.9 percent? Use $1,000 as the face value. What is the duration of a two-year zero-coupon bond that is yielding 11.5 percent?
Strength and weaknesses of company sales-profitability : Choose a publicly traded company. Download the latest available financial reports (balance sheet, income statement, statement of cash flows, and statement of owners' equity). What is your overall opinion about the strength and weaknesses of this comp..
How much will each annual payment be : You need to accumulate $119,538 for your son’s education. You have decided to place equal year-end deposits in a savings account for the next 17 years. The savings account pays 6.46 percent per year, compounded annually. How much will each annual pay..
Calculate the return on your investment in usd : You have just sold shares in Credit Suisse, a Swiss firm, for CHF10,040 (or 10,040 Swiss Francs). You purchased this parcel of shares for CHF6,400. The spot rate is currently CHF/USD1.70 (or 1.70 Swiss Francs per US dollar). It was CHF/USD1.88 per do..
Annual interest rate and exchange rate : At the start of 2006, the annual interest rate was 5 percent in the United States and 2.8 percent in Japan. The exchange rate was 95 yen per dollar at the time. Mr. Jorus, who is the manager of a Bermuda-based hedge fund, thought that the substantial..
Expecting a period of intense growth : Black Kat Inc. is expecting a period of intense growth, so it has decided to retain more of its earnings to help finance that growth. As a result it is going to reduce its annual dividend by 10% a year for the next three years. After that it will mai..
Considering new three-year expansion project : Mercy Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.85 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life.
What is the amount of each mortgage payment : You purchased a piece of property for $1,056,000. The loan terms require monthly payments for 10 years at an annual rate of 4.75%. What is the amount of each mortgage payment?
What return are shareholders expecting : A company recently paid a $1.15 dividend. The dividend is expected to grow at a 16.9 percent rate. At a current stock price of $45.87, what return are shareholders expecting?

Reviews

Write a Review

Financial Management Questions & Answers

  Drawbacks of corporation as form of business organization

Critique the benefits and drawbacks of corporation as a form of business organization.

  What is the dividend yield

For the past six years, the price of Slippery Rock stock has been increasing at a rate of 9.6 percent a year. Currently, the stock is priced at $67 a share and has a required return of 14 percent. What is the dividend yield?

  Annual maturity risk premium and bonds default risk premium

Suppose economists expect that the nominal risk-free rate of return, rRF, which is also the rate on a one-year Treasury note, will be 3.2 percent long into the future. You are evaluating two corporate bonds that are identical except for their terms t..

  What would your cash flow be for each year for next two year

You own 1,100 shares of stock in Avondale Corporation. You will receive a $1.50 per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $45 per share. The required return on Avondale stock is 20 percent. If you would..

  Calculate the present value of the cash inflows of project

Southern California Publishing Company is trying to decide whether to revise its popular textbook, Financial Psychoanalysis Made Simple. The company has estimated that the revision will cost $85,000. If the company requires a return of 10 percent for..

  What information is contained in a loan repayment schedule

What is simple interest? What information is needed to compute it? What information is contained in a loan repayment schedule?

  A firm is considering two different capital structures

A firm is considering two different capital structures. The first option is an all-equity firm with 40,000 shares of stock. The second option is 28,000 shares of stock plus some debt. Ignoring taxes, the break-even level of earnings before interest a..

  Project that provides annual cash flows

A project that provides annual cash flows of $17,300 for nine years costs $79,000 today. What is the NPV for the project if the required return is 20 percent? At a required return of 20 percent, should the firm accept this project?

  Calculate the firm total assets turnover ratio

American Bacon Inc. financial statements are presented in the table below. Based on the information in the table, calculate the firm’s total assets turnover ratio. Cash and marketable securities $102,000 Accounts payable $287,000 Accounts receivable ..

  About the portfolio return

Portfolio Return At the beginning of the month, you owned $6,200 of Company G, $8,500 of Company S, and $2,000 of Company N. The monthly returns for Company G, Company S, and Company N were 7.75 percent, -1.55 percent, and -.18 percent. What is your ..

  What yield to maturity is the bond offering

A 5.85 percent coupon bond with 18 years left to maturity is offered for sale at $1,055.25. What yield to maturity is the bond offering?

  Case of a routine medical checkup for a pregnant woman.

Consider a case of a routine medical checkup for a pregnant woman. Suppose that a new ultrasound method is introduced. A checkup using the new method costs 10% more than a checkup using the old method.

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