Determine the dollar amount of your profit

Assignment Help Financial Management
Reference no: EM13952176

The U.S. three-month interest rate (unannualized) is 2%. The Australian three-month interest rate (unannualized) is 4%. Assume interest rate parity exists. The expected inflation over this period is 7% in the U.S. and 4% in Australia. A call option with a three-month expiration date on Australian dollars is available for a premium of $.01 and a strike price of $.88. The spot rate of the Australian dollar is $.91. Assume that you believe in purchasing power parity.

Determine the dollar amount of your profit or loss from buying a call option contract specifying $110,000 Australian dollars. Show all work.

Reference no: EM13952176

Questions Cloud

Create a professional document that promotes development : Search the Internet for information on a topic that interests you and that offers information on money management, personal health and safety, or parenting. Note the URL's where you find your material, as you will need to reference the information..
Market showed long-term debt : The December 31, 2013, balance sheet of Suzette's Market showed long-term debt of $638,100 and the December 31, 2014, balance sheet showed long-term debt of $574,600. The 2010 income statement showed an interest expense of $42,300. What was the firm'..
What is the acceleration of the mass : A 50 Newton horizontal force pushes on a 10 kg mass sitting on a horizontal surface. Additionally the horizontal surface exerts a 25 Newton frictional force on the mass. What is the acceleration of the mass?
Identify an effective argument a colleague presented : Based on the discussions surrounding the Case Study 2, we all seem to understand the importance of a varied curriculum on both sides of the spectrum. In accordance to each doctoral candidate's background, I believe that we have witnessed situatio..
Determine the dollar amount of your profit : The U.S. three-month interest rate (unannualized) is 2%. The Australian three-month interest rate (unannualized) is 4%. Assume interest rate parity exists. The expected inflation over this period is 7% in the U.S. and 4% in Australia. Determine the d..
Determine the missing manufacturing costs : Determine the missing manufacturing costs for Carson Company for selected months
New financial services : A new financial services company just opened in your town. To attract customers, it is offering a "9-11" loan special. The company will lend $9 today in exchange for a payment of $11 one year from today. What is the APR on this loan? Select one: a. 2..
Estimate the density of a sample of brass : Estimate the density of a sample of brass that contains 75% copper. b.if you determined the density of a sample of brass to be 8.75 g/mL, what percentage of zinc does it contain?
Net present value is the present value of cash inflows less : Financial Leverage increases expected ROE and ROI as well as their variability. Discount cash flow valuation views a business as if it were a large capital expenditure opportunity. Net Present value is the present value of cash inflows less the futur..

Reviews

Write a Review

Financial Management Questions & Answers

  Projections given for price-quantity-variable costs

You are evaluating a project that costs $840,000, has seven-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 90,000 units per year. Price per unit is $40, vari..

  Determine that upon retirement

Jack and Jill determine that upon retirement, they will need to withdraw $70,000 annually at the end of each year for the next thirty years. They know that they can earn 4% each year on their investment. How much will Jack and Jill need in their reti..

  Operating profit or loss associated with the production

The Poseidon Swim company produces swim trunks. The average selling price for one of their swim trunks is $70.63. The variable cost per unit is $21.32. Poseidon swim has average fixed costs per year of $16,322. What would be the operating profit or l..

  To achieve your desired contract negotiation results you

1. fixed price cost reimbursable and time and material contracts are all potential agreements that could be reached

  Other situations involving voidable contracts

Laura removes the airbags from a used car, and then offers to sell the car to David without disclosing the removal. David agrees to purchase the used car without asking any questions about the airbags or investigating whether they are present. Upon d..

  How expensive car can you afford

Suppose you can afford to pay $ 250 a month for 9 years towards a new car with no down payment. If the current interest rates are 4.25%, how expensive a car can you afford?

  Cash flows assuming that the direct method is used

Oakmont Inc. reported accounts receivable of $28,000 on its December 31, 2013, balance sheet. On December 31, 2014, accounts receivable had decreased to $15,500. Sales for the year amounted to $68,500. What is the amount of cash collections that Oakm..

  Find out that all of casters were defective and unusable

This caused the company to default on several contracts for rolling cabinets as it ran out of casters before it could secure replacements for the defective ones. Cabinet Co. was able to replace the casters at a 15% increase in cost.

  Information for home mortgage

Assume the following information for a home mortgage: How much principal and interest was paid in year four, and what is the principal balance on the loan after four years?

  What are the five major categories of ratios

Why are ratios useful? What are the five major categories of ratios? Calculate D'Leon's 2013 current and quick ratios based on the projected balance sheet and income statement data.  What can you say about the company's liquidity positions in 2011, i..

  What compounding did you think this account used

Six years ago you placed $ 250 in a savings account which is now worth $ 1,040.28. When you put the funds into the account, you were told it would pay 24 percent interest. You expected to find the account worth $ 908.80. What compounding did you thin..

  Calculate the stocks coefficient of variation

Expected return A stock's returns have the following distribution: Demand for the Company's Products Probability of This Demand Occurring Rate of Return If This Demand Occurs. Calculate the stock's standard deviation. Calculate the stock's expected r..

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