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If interest rates are 2% lower in the U.S. that a foreign country. The foreign currency exhibits a 3% forward disocunt. who has a covered interest arbitrage opportunity?
Financial analysis (called security analysis on Wall Street) can be less than totally objective. How big a problem do you think this is? What can be done to manage potential conflicts of interest? Maybe we just have to live with it and search out the..
The spot price of oil is $110 per barrel and the cost of storing a barrel of oil for one year is $3.25, payable at the end of the year. The risk-free interest rate is 6% per annum, continuously compounded. What is an upper bound for the one-year futu..
A borrower takes out a 30-year mortgage loan for $250,000 with an interest rate of 5% and monthly payments. What portion of the first month’s payment would be applied to interest? If a loan is held to maturity, a prepayment penalty in a mortgage has ..
ATL Constructions is trying to determine the optimal level of short term financing for its working capital requirement. You are asked to provide an analysis on the three key factors that the company should consider in selecting different sources of s..
Jiminy’s Cricket Farm issued a bond with 10 years to maturity and a semiannual coupon rate of 8 percent 3 years ago. The bond currently sells for 96 percent of its face value. The company’s tax rate is 35 percent. What is the pretax cost of debt? Wha..
A stock has an expected return of 3%. What is its beta? Assume the risk-free rate is 7% and the expected rate of return on the market is 12%.
Hit or Miss Sports is introducing a new product this year. If its see-at-night soccer balls are a hit, the firm expects to be able to sell 68,000 units a year at a price of $50 each. If the new product is a bust, only 48,000 units can be sold at a pr..
Suppose a stock had an initial price of $80 per share, paid a dividend of $0.60 per share during the year, and had an ending share price of $88. What was the dividend yield and the capital gains yield?
A contractor has purchased a piece of equipment for $150,000 and expects to use it 1,000 hrs per year for 10 years. The salvage value is $8,000 after 10 years. A single major repair of $20,000 is expected at the end of the 5th year. With an interest ..
Suppose the CAPM is true and you observe the following: Beta(i)=2. In a regression of Er(i) on Er(m), the R squared= 0.8 and the idiosyncratic variance of asset (i) is 25%. What is the standard deviation of the return on the market portfolio?
Suppose you can afford to pay $ 250 a month for 9 years towards a new car with no down payment. If the current interest rates are 4.25%, how expensive a car can you afford?
CAPM Required Return A company has a beta of .67. If the market return is expected to be 13.7 percent and the risk-free rate is 5.85 percent, what is the company's required return?
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