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1) Suppose the underlying asset of a forward contract is a stock. This stock’s current price is S and it doesn’t pay dividends. Assume T is the delivery time and r is the risk-free rate of interest per year with continuous compounding. Please derive the no arbitrage forward price F.
2) Consider an 8-month forward contract on AT&T stock. The current price of AT&T is $65. What is the current forward price if the risk-free rate of interest is 6% per year (continuously compounded)? If the forward price is $65, how can you take advantage of this arbitrage opportunity? (Please show me your arbitrage strategies with your arbitrage profit)
3) Please list and explain the three forms of market efficiency and describe one piece of evidence against the Efficient Market Hypothesis (EMH)?
4) Please answer the following three questions. a. How does one country’s price level affect equilibrium exchange rate in short run? b. An investor in Canada purchased 100 shares of IBM on January 1st at $93.00/share. IBM paid an annual dividend of $0.72 on December 31st. The stock was sold that day as well for $100.25/share. The exchange rate is a $0.71/Canadian dollar on January 1st and $0.68/Canadian dollar on December 31st. What is the investor’s total return in Canadian dollars? c. The Mexican peso is trading at 11 pesos per dollar. If the expected U.S. inflation rate is 3% while the Mexican inflation rate is 22% over the next year, what is the expected exchange (pesos/$) rate in one year?
Target is expected to pay a dividend in year 1 of $2.11, a dividend in year 2 of $4.96, and a dividend in year 3 of $6.24. After year 3 dividends are expected to grow at the rate of 8% per year. Currently, target has a beta of 1.25, and the market pr..
Write out the constant growth model. Based on the model, explain why a company's stock price will drop if the company cuts dividends?
You have successfully started and operated a company for the past 10 years. If you require an EAR of 9 percent, how much are you being offered for your company?
The Odessa Supply Company is considering obtaining a loan.- Determine the annual financing cost of a loan under this arrangement if Odessa borrows the given amounts.
Which of the following is a limitation of the “percent of sales method” of preparing pro forma financial statements?
What is the future value of $12 deposited today in 5 years when earning 6% simple rate of interest?
The assets less non-current assets equals
The two-year interest rate is 11.2% and the expected annual inflation rate is 5.6%. a. What is the expected real interest rate? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Expected real interest rate 5.30 % b-1. I..
You observe the following three exchange rates at which you can buy or sell (borrow or lend). Calculate your total profit from triangular arbitrage, reporting your total profit in $ (by first calculating the profit in British pounds and then converti..
Angela is offered to buy a financial security that guarantees to pay $30 every 3 years. The annual interest rate is 9%. Calculate and explain in words all calculations for the following: How much would Angela pay for it today if the first payment wil..
Provide the general outline of existing RBC requirements. Is there a difference between default risk, interest rate risk, and liquidity risk?
Dahlia Colby, CFO of Charming Florist Ltd., has created the firm’s pro forma balance sheet for the next fiscal year. Sales are projected to grow by 20 percent to $480 million. Prepare the current balance sheet for the firm using the projected sales ..
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