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Raya Mutual Fund of Kuala Lumpur has RM5 million to invest in certificates of deposit (CDs) for the next six months (180 days). It can buy either a CIMB Bank CD with an annual yield of 10% or a Mumbai (India) Bank CD with a yield of 12.5%. Assume that the CDs are of comparable default risk. The analysts of the mutual fund are concerned about exchange rate risk. They were quoted the following exchange rates by the international department of Kuala Lumpur City bank: India (INR) Spot RM0.42 30-day forward 0.4190 90-day forward 0.4170 180-day forward 0.4155 (a) If the Mumbai Bank CD is purchased and held to maturity, determine the net gain (loss) in Malaysian ringgit relative to CIMB CD, assuming that the exchange rate in 180 days equals today’s spot. (b) Suppose INR declines in value by 5% relative to the Malaysian ringgit over the next 180 days. Determine the net gain or loss of the Mumbai Bank CD in Malaysian ringgit relative to the CIMB Bank CD for an uncovered position. (c) Determine the net gain or loss from a covered position. (d) What others factors should be considered in decision to purchase the Mumbai Bank CD?
Pullman Corp issued 10-year bonds four years ago with a coupon rate of 9.16 percent. At the time of issue, the bonds sold at par. Today bonds of similar risk and maturity must pay an annual coupon of 5.60 percent to sell at par value. Assuming semi a..
Value these bonds assuming a market rate on similar risk bonds is 7% and interest is paid annually. Value these bonds assuming a market rate on similar risk bonds is 7% and interest is paid semi-annually.
ExxonMobil (XOM) is one of the half- dozen major oil companies in the world. The firm has four primary operating divisions (upstream, downstream, chemical, and global services) as well as a number of operating companies that it has acquired over the ..
Which of the following tends to reduce industry profitability?
What is the present value of the following annuity? $1,021 every half year at the beginning of the period for the next six years, discounted back to the present at 8.93 percent per year, compounded semi annually?
Chartreuse County Choppers Inc. is experiencing rapid growth. The company expects dividends to grow at 17 percent per year for the next 10 years before leveling off at 4 percent into perpetuity. The required return on the company’s stock is 12 percen..
In the major world capital markets, the barriers to the free flow of capital include all of the following except. low transaction costs b. taxation policies c. foreign exchange d. risks legal restrictions.
Discuss why both supply and demand analysis and marginal analysis must be used in making rational business decisions. Please include specific examples in your discussion posts. Also include the difference between substitutes and complements and the d..
A Treasury bond that matures in 10 years has a yield of 6.5%. A 10-year corporate bond has a yield of 10.5%. Assume that the liquidity premium on the corporate bond is 2%. What is the default risk premium on the corporate bond?
A stock had a return of 5.7 percent last year. If the inflation rate was 1.6 percent, what was the approximate real return?
You have $34,211.54 in a brokerage account, and you plan to deposit an additional $4,000 at the end of every future year until your account totals $270,000. You expect to earn 10% annually on the account. How many years will it take to reach your goa..
You are considering buying a house for $200,000. You have $40,000 in your bank account which pays 1% APR compounded monthly. If you contribute 10% of the price of the house as a down payment, the terms of your mortgage will be an original balance of ..
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