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Your firm is a U.S.-based exporter of toys. You have sold an order to an Italian firm for €1,000,000 worth of toys. Payment from the Italian firm (in €) is due in 1 year.
Your firm wants to hedge the receivable. The one-year interest is 2% in the U.S. and 4% in the euro zone. The spot exchange rate is $1.30/ €.
a.Using the money market hedge, how much does your firm need to borrow and from whom now? The U.S. bank or the euro bank? And what is your today's revenue in terms of dollar?
b. Using the forward market hedge, what is an appropriate forward exchange rate for the euro?
c. Using the option market hedge, which option is appropriate, a call option or put option? Suppose that the exercise price is $1.25/€ and the option premium is $0.04. If the exchange rate is $1.20/€ in 1 year, would you exercise the option or not? If you exercise the option, figure out the payoff.
Your portfolio consists of $50,000 invested in Stock X and $50,000 invested in Stock Y. Both stocks have an expected return of 15 percent, a beta of 1.6, and a standard deviation of 30 percent.
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Find a mix of ten current call and put options for Apple, Inc. (AAPL) with different expiration months and exercise prices. Indicate which options are in the money. Calculate the intrinsic value and time value for each option.
The project is expected to increase annual sales by $338,000 and annual cash expenses by $184,000. The company has a marginal tax rate of 32 percent. What is the annual value of the depreciation tax shield?
Computation of credit policy by using the given information and the average sale price per unit is $1,000 and the variable cost per unit is $850
Describing the importance of the concept of present value therefore important for corporate finance and is often the very first topic taught in any finance class.
In Mid 2012, the following information was true about abercrombie and fitch (ANF) and The GAP (GPS), both clothing retailers. Values(except price per share) are in millions of dollars.
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