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You read in a newspaper that the nominal interest rate is 12 percent per year in Canada and 8 percent per year in the United States. Suppose that the real interest rates are equalized in the two countries and that purchasing-power parity holds.
a) Using the Fisher equation, what can you infer about expected inflation in Canada and in the United States?
b) What can you infer about expected change in the exchange rate between the Canadian dollar and the U.S. dollar?
c) A friend proposes a get-rich-quick scheme: borrow from a US bank at 8%, deposit the money in a Canadian bank at 12%, and make a 4% profit. What is wrong with this scheme?
A 10-year bond paying a 10% (semiannual) coupon is priced at 90.50% of face value. if the current yield changes to 12%, what will be the new of the bond
You own 300 shares of stock which dropped drastically in value today down to $13.50 a share. You have a margin loan of $2,880. What is the amount of your margin call if the maintenance margin is 40 percent
Calculate the arithmetic average returns for large-company stocks and T-bills over this period. Calculate the observed risk premium in each year for the large-company stocks versus the T-bills.
What's the present value of a $1,000 bond that matures in 2 years and pays coupons at the rate of 2% per eyar> ( one coupon every 6 months) Assume that the risk free interest rate is 3% throughout the 3 year period.
The Federal Reserve has decided that interest rates need to be increased to maintain low inflation in the economy. To accomplish this goal, the Fed has determined that the money supply needs to be decreased by $188 billion.
If the future value of an ordinary, 11 year annuity is $5,575 and interest rates are 5.5%, what is the future value of the same annuity due
Walther Enterprises has accounts receivable of $52,700, total assets of $269,250, cost of goods sold of $147,900 and a capital intensity ratio of 1.25. What is the accounts receivables turnover rate
A project has an expected risky cash flow of $500, in year 4. The risk-free rate is 4%, the market rate of return is 13%, and the project's beta is 1.2. Calculate the certainty equivalent cash flow for year 4.
You want to buy a new sports car from Muscle Motors for $86,000. The contract is in the form of a 72-month annuity due at a 7.65 percent APR. What will your monthly payment be
Russo's Gas Distributor, Inc. wants to determine the required return on a stock with a beta coefficient of 0.5. Assuming the risk free rate of 6 percent and the market return of 12 percent.
Here and Gone, Inc., has sales of $19.9 million, total assets of $14.9 million, and total debt of $5.7 million. Assume the profit margin is 12 percent.
After inheriting $40,000 you open up two separate brokerage accounts and divide your inheritance equally in both accounts ($20,000 in each). You use only these funds to trade in two stocks for two months at the end
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