### Interest rate parity in calculating the expected spot rates

Assignment Help Financial Management
##### Reference no: EM131027038

You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 18 million. The cash flows from the project would be sf 5.5 million per year for the next five years. The dollar required return is 15 percent per year, and the current exchange rate is sf 1.05. The going rate on euro dollars is 4 per center per year. It is 3 percent per year on euro Swiss. Use the approximate form of interest rate parity in calculating the expected spot rates.

#### Questions Cloud

 Investor-owned chain of ambulatory care clinics : California Clinics, an investor-owned chain of ambulatory care clinics, just paid a dividend of \$2 per share. The firm's dividend is expected to grow at a constant rate of 5 percent per year, and investors require a 15 percent rate of return on the s.. Coupon bonds making annual payments with a YTM : Cavo Corp. has 8 percent coupon bonds making annual payments with a YTM of 7.5 percent. The current yield on these bonds is 7.85 percent. How many years do these bonds have left until they mature? How would i put this into excel? Sector fund specializing in commercial bank stocks : A sector fund specializing in commercial bank stocks had average daily assets of \$3.4 billion during the year. This fund sold \$1.25 billion worth of stock during the year, and its turnover ratio was .42. How much stock did this mutual fund purchase d.. Determine the equivalent uniform annual worth : A company plans to invest \$20,000 dollars are new equipment to reduce operating costs. It is estimated that the savings will be \$7,000 per year for the 6 year life of the equipment. Determine the equivalent uniform annual worth (EUAW) of the equipmen.. Interest rate parity in calculating the expected spot rates : You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 18 million. The cash flows from the project would be sf 5.5 million per year for the next five years. Use the approximate .. Capitalization increase or decrease shareholder wealth : Barns Brother's capital structure is 100% equity and 0% debt. Currently there are 100,000 shares of common stock outstanding. Barns has decided to change its capital structure by buying back shares of common stock in a recapitalization effort. How mu.. Calculate total cash flows operational and nonoperational : A company is purchasing a new machine which will cost \$130,000 with additional shipping costs of \$5,000 and set up and installation costs of \$12,000. An additional \$8,000 in Net Working Capital will be required. Calculate the total cash flows (operat.. For nominal bond returns : Over the last 111 years, 1981 was the top year for nominal bill returns, and 1982 was the top year for nominal bond returns. Why do you think that these two years saw such high returns on bonds and bills? Research the interest rate environment during.. About british laws as applied to workplace surveillance : The article is talking about British laws as applied to workplace surveillance. Do you think that similar laws can work in the US to give more protection to employees? The article raises the question of consent from employees to be monitored. Do you ..

### Write a Review

#### PV and Effective Annual Rate

Assume that you inherited some money. A friend of yours is working as an unpaid intern at a local brokerage firm and her boss is selling securities that call for 4 payments of \$50 (1payment at the end of each of the next 4 years) plus an extra paymen..

#### What is the put delta

Consider a 6-month European put on GOOG with a strike price of \$650. GOOG spot price is \$725 and its volatility is 25%. The stock is not expected to pay any dividend. The risk-free rate is 4%. What is the put delta? If an investor with a short positi..

#### Non-depreciating assets

Will-O-Wind Airlines always invests (in non-depreciating assets) 20% of its earnings, which will be next period (Period 1) \$3 per share. The rest it pays out as dividends. Its investment opportunities currently earn (and are expected to earn in the i..

#### Forecast of demand-find the break-even quantity

A producer of felt-tip pens has received a forecast of demand of 34,000 pens for the coming month from its marketing department. Fixed costs of \$30,000 per month are allocated to the felt-tip operation, and variable costs are 36 cents per pen. Find t..

#### Liabilities and equity categories

Broncs Bank has the following liabilities and equity categories: What would be the bank’s total liabilities and capital if owners’ capital were 75% the size of Other Liabilities? If Total Liabilities and Capital were 18 million what would be the size..

#### The intrinsic value of the bond

A coupon bond that pays interest annually has a par value of \$1,000, matures in seven years, and has a yield to maturity of 9.3%. The intrinsic value of the bond today will be how much if the coupon rate is 8.5%. (whole number and cents if necessary)

#### What is her cash flow under the current capital structure

Star, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 30 percent debt. Currently there are 5,000 shares outstanding and the price per share is \$86. Ms. Brown, a sharehold..

#### What was the cash coverage ratio for the year

The Docksider has net income for the most recent year of \$25,000. The tax rate was 20 percent. The firm paid \$2,500 in total interest expense and deducted \$1,500 in depreciation expense. What was the cash coverage ratio for the year?

#### Beta of firm is likely to be high under what two conditions

The beta of a firm is likely to be high under what two conditions?

#### What is the portfolio beta

You own a stock portfolio invested 30 percent in Stock Q, 25 percent in Stock R, 30 percent in Stock S, and 15 percent in Stock T. The betas for these four stocks are .91, 1.24, 1.08, and 1.26, respectively. What is the portfolio beta? (Do not round ..

#### Notion of civic responsibility is important in understanding

The notion of civic responsibility is important in understanding

#### Compute degree of operating-financial and total leverage

Firm R has sales of 96,000 units at 1.98 per unit, variable operating cost of \$1.73 per unit, and fixed operating cost of \$6,010. Interest is \$10,060 per year. Compute the degree of operating, financial, and total leverage for the firm R. Compute the..