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Assume you are a trader with Deutsche Bank. From the quote screen on your computer terminal, you notice that Dresdner Bank is quoting €0.855/$1.00 and Credit Suisse is offering SF1.1825/$1.00. You learn that UBS is making a direct market between the Swiss franc and the euro, with a current €/SF quote of € 0.754/SF. Show how you can make a triangular arbitrage profit by trading at these prices. (Ignore bid-ask spreads for this problem.) Assume you have $5,000,000 with which to conduct the arbitrage. What happens if you initially sell dollars for Swiss francs? What €/SF price will eliminate triangular arbitrage?
Project A requires an initial investment of $7,500 at t = 0. Project A has an expected life of 4 years with cash inflows of $5,000, $4,500, $900, $2,000 at the end of Years 1, 2, 3, and 4 respectively. The project has a required return of 15%. What i..
A 6.40 percent coupon bond with ten years left to maturity is priced to offer a 7.8 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.0 percent. What is the change in price the bond will experience in dollars?
Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.
Machine A requires an initial investment of $ 5,000, has a 10 year life expectancy, and is expected to reduce the company's operating costs by $ 1,200. annually in real terms. This machine would have no sales value at the end of its useful life. The ..
Strudler Real Estate, Inc., a construction firm financed by both debt and equity, is undertaking a new project. If the project is successful, the value of the firm in one year will be $320 million, but if the project is a failure, the firm will be wo..
Insurance An Insurance company is offering a new policy to its customers. Typically, the policy is bought by a parent or grandparent for a child at the child’s birth. When the child reaches age 65, he or she receives $350,000. If the relevant interes..
Asset W has an expected return of 17.0 percent and a beta of 1.50. If the risk-free rate is 2.2 percent, what is the market risk premium?
A summarized income statement for Leveraged Inc. is presented below. Sales $1,000000 Cost of sales 600,000 Gross profit 400,000 operating expenses 250,000 Operating Income 150,000 Interest expense 30,000 Earnings before taxes 120,000 Income tax 40,00..
Suppose a firm has a book balance of $2 million. At the automatic teller machine (ATM), the cash manager finds out that the bank balance is $2.5 million. What is the situation here? If this is an ongoing situation, what ethical dilemma arises?
You have $15,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 15 percent and Stock Y with an expected return of 9 percent. Assume your goal is to create a portfolio with an expected return of 12.65 percent. How ..
A firm is considering a project with a 5-year life and an initial cost of $135,000. The discount rate for the project is 13%. The firm expects to sell 2,400 units a year for the first 3 years. The cash flow per unit is $20. What is the net present va..
Write a Summary ( Short Report ) about Causes and Effects of financial crisis in 2008
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