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Interest Rate Parity
The nominal yield on 6-month T-bills is 8%, while default-free Japanese bonds that mature in 6 months have a nominal rate of 3.5%. In the spot exchange market, 1 yen equals $0.005. If interest rate parity holds, what is the 6-month forward exchange rate? Round the answer to five decimal places.
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What other instrument is the same as a 5-year zero-cost collar where the strike price of the cap equals the strike price of the floor? What does the common strike price equal?
Cost of capital is- the average cost of the firm's assets, the hurdle rate set by the board of directors, the coupon rate of debt
After four years, a machine had an accumulated depreciation of $38,000. The machine originally had an anticipated life of eight years and a salvage value of $5,000. If the current book value after four years is $43,000 and the machine has only two ye..
An investment offers a total return of 13 percent over the coming year. Bill Bernanke thinks the total real return on this investment will be only 8.5 percent. What does Bill believe the inflation rate will be over the next year?
Stephani German, a 40-year-old woman, plans to retire at age 65, she wants to accumulate $500,000 over the next 25 years to supplement the retirement programs that are being funded by the federal government and her employer. She expects to earn an av..
Suppose you found yourself in a position where your monthly level of income was cut in half. Assume this misfortune will persist for the long term. Discuss the effect such a salary reduction would have on your current lifestyle. What conclusions can ..
What is the Modified IRR of Project D if the cost of capital is 9%? What is the Net Present Value of project E if the cost of capital is 12%? What is Project A’s Profitability Index if the cost of capital is 6%? What is the Crossover Rate between Pro..
The faraway moving company is in a major plant of expansion that involves the expenditure of $211 million in the coming year.The firm plans on financing the expansion through retension of $140 in firm earning and borrowing the remaining $71 million. ..
The president of the company you work for has asked you to evaluate the proposed acquisition of a new chromatograph for the firm’s R&D department The equipment's basic price is $190,000, and it would cost another $47,500 to modify it for special use ..
What is the amount of the operating cash flow for a firm with revenues of $1,000,000; expenses of 400,000; depreciation expense of $100,000; and a 35% marginal tax rate?
Tea&Juices, a foreign producer of soft drinks, is considering expanding its activities to Canada. To evaluate the profitability of the business, the management has decided to use as benchmarks two other foreign producers of soft drinks who have alrea..
Suppose the short rate today is r1 = 6 percent while the expected short rate next year is E(r2) = 7 percent. Suppose Ann is a short-term investor whose goal is to have $2,000 next year. Find the risk premium Ann is demanding from the 2-year zero. Fin..
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