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Ferd Rumpledink, a foreign exchange trader at UBS Bank, is exploring covered interest arbitrage opportunities. He has 10,000,000 USD (or the CHF equivalent at the current spot rate) to invest and is considering a 180 day investment. Assume he already has the funds and does not need to borrow them. He has observed the following exchange rate and interest rate quotes (exchange rates are in currency pairs notation): Spot rate (CHF/USD) 1.1861 180-day forward rate (CHF/USD) (not annualized) 1.1812 180-day U.S. dollar interest rate (annualized) 5.200% 180-day Swiss Franc interest rate (annualized) 6.100% Can Ferd make an arbitrage profit on this situation? If so, should he invest USD or CHF? Show your work on a block diagram like the ones we used in class for covered interest arbitrage. (Remember that interest rates are quoted as annual, but your investment period is 180 days.)
Describe beliefs you have that fall in each of these categories (interpretation, evaluation, conclusion, prediction)and then explain the reason(s) you have for endorsing the beliefs.
Bayou Okra Farms just paid a dividend of $3.65 on its stock. The growth rate in dividends is expected to be a constant 7 percent per year indefinitely. Investors require a return of 15 percent for the first three years, a return of 13 percent for the..
Wal-Mart company Financial analysis
Which critical path activity would be the most logical choice for the second activity to crash?
Assume that Valley Forge Hospital has only the following three payer groups: Assuming that the utilization reduction also occurs, what overall net income would be produced if the variable cost per admission for the capitated group were lowered to $2,..
Lion's share inc just bought a 3 million dollar machine that will be depreciated over its 10 year life using straight line depreciation. The marginal tax rate is 40%. What is Lion Share's after tax salvage value if the machine is sold in year 8 for 4..
You are considering an investment with the following cash flows. If the required rate of return for this investment is 13.5%, should you accept it based solely on the internal rate of return rule? Why or why not?
Which of the following is not necessarily to be estimated for a "optimal replacement life for equipment" decision?
Seth Bullock, the owner of Bullock Gold Mining, is evaluating a new gold mine in South Dakota. Dan Dority, the company's geologist, has just finished his analysis of the mine site. Construct a spreadsheet to calculate the payback period, internal rat..
You have won the church spring raffle. You are presented with three price choices, and you must pick the best one. The discount rate if 8%. Choice 1 = $4,800 payment one year from now; Choice 2 = 5 payments of $1,200 starting at the end of this year;..
You purchased 100 shares of IBM common stock on margin at $70 per share. Assume the initial margin is 50% and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest ..
What is the current price for Berkshire Hathaway stock, class A. What kind of signal do you think it sends? Has the class A stock has ever had a stock split?
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