Suppose the going one year interest rate in the U.S. is 3% while it is 1% in the Japan. Furthermore, the going exchange rate is 110 Japanese yen/ U.S. dollar. What is the effective financing rate in the U.S. from borrowing in Japan? -2% 2% 1% Not enough information is provided.
Q: 50. Suppose the risk-free rate is 2.20% and analysts estimate that the market risk premium is 5.50%.…
A: Risk free rate = 2.20% Market risk premium = 5.50% Beta = 1.22 As per CAPM, the cost of equity is
Q: A floating rate issue has the following coupon formula:…
A: Debt instruments known as floating rate bonds have interest payments that are based on a benchmark…
Q: The Holmes Company's currently outstanding bonds have a 9% coupon and an 11% yield to maturity.…
A: The effective interest rate that a business pays on its debt commitments is known as the cost of…
Q: Some of you may remember Blackberry as the top leader in mobile phone. The book pointed out…
A: The term "cost of capital" states the needed rate of return that a business must achieve on its…
Q: A firm has recorded EBIT at $1,800, depreciation at $500, EBT at $1,700 and a tax rate of 40%. Find…
A: EBIT = $1800Depreciation = $500EBT = $1700Tax rate = 40%
Q: Greta has risk aversion of A-3 when applied to return on wealth over a one-year horizon. She is…
A: An optimal portfolio is a portfolio of assets that maximizes an investor's expected return for a…
Q: The Wildcat Oil Company is trying to decide whether to lease or buy a new computer- assisted…
A: Here,Cost of Equipment is $6,600,000Lease Payments is $1,600,000Life of Equipment is 5 yearsTax Rate…
Q: The loan below was paid in full before its due date. (a) Obtain the value of h from the annual…
A: An annual percentage rate table is a table that shows the (h) value which is the value of finance…
Q: Carefully graph the payoff of the combination of options at expiration.
A: A call option gives the right but not the obligation to buy at the strike price while a put option…
Q: Quarter-end payments of $1,490 are made for 8 years to settle a loan of $31,880. What is the…
A: Compound = n = Quarterly = 4Payment = pmt = $1490Time = nper = 8 * 4 = 32Present Value of Loan = pv…
Q: Taussig Corp.'s bonds currently sell for $1,220. They have a 6.35% annual coupon rate and a 20-year…
A: The yield to maturity (YTM) is the rate of return that an investor expected to earn if the bond is…
Q: Consider two companies: Honda and IBM. Honda wants to borrow US$ for the following 5 years at a…
A: A currency swap is an agreement between two parties in which they agree to pay the interest rate on…
Q: McSwing Inc. has decided to sell a new line of golf clubs. They will sell for $925 per set and have…
A: NPV represents the amount of profitability generated by an investment and expressed in absolute…
Q: You just opened a brokerage account, depositing $4,000. You expect the account to earn an interest…
A: The FV of an investment refers to the combined value of its cash flows at a predetermined future…
Q: Expected return: % Standard deviation: %
A: We can determine the expected return and standard deviation using the formula below:In the formula…
Q: Sunland's Auto Care is considering the purchase of a new tow truck. The garage doesn't currently…
A: Over a predetermined time period, the cash inflows and outflows related to the investment are…
Q: Banyan Co.'s common stock currently sells for $51.25 per share. The growth rate is a constant 5%,…
A: Newly issued shares or ownership stakes in a firm are referred to as "new equity." A corporation is…
Q: The interest rates in the Eurozone and the United States are 6.04% and 3.44%, respectively.…
A: The Currency Carry Trade refers to the trading strategy used for earning profits by borrowing money…
Q: Deposits of $82.00 are made at the end of every quarter for 4,5 years. What will the deposits amount…
A: > Given data> Rate = 7%> Years = 4.5 years> Deposits = 82>Please refer to the below…
Q: 1) If ABC's annual tuition increases by 8% per year, approximately how much will the annual tuition…
A: To calculate the annual tuition for Matthew during his freshman year, we need to consider the…
Q: Calculate the total asset turnover (sales / total assets) for the firm below. Sales 5000 COGS…
A: Ratio analysis can help with financial planning and forecasting. Businesses may forecast future…
Q: What was the wells fargo account fraud scandal? What illegal behavior was conducted?
A: The Wells Fargo account fraud scandal refers to a high-profile case involving Wells Fargo, one of…
Q: You have just purchased a home and taken out a $510,000 mortgage. The mortgage has a 30-year term…
A: Mortgage amount = $510,000Term: 30 yearsAPR: 7.04%Monthly payments are to be made.Required:1.…
Q: Kaitlyn contributed $1,500 at the end of every 3 months into an RRSP fund earning 2.79% compounded…
A: Future value refers to the function of time, value of money who describes the value of the current…
Q: h-1. If Reed sells his interest in Slicenhook to Indie Ruff, what is Indie's inside basis in…
A: It is a tax provision that allows a partnership to adjust the tax basis of its assets when there is…
Q: If the return on stock A in year 1 was 10 %, in year 2 was -6 %, in year 3 was -2 % and in year 4…
A: Here,YearAnnual Stock Return (R )110%2-6%3-2%410%
Q: Automotive industry has been generally considered to be at the maturity stage of the industry life…
A: The link between risk and anticipated return for efficient portfolios in the capital market is…
Q: KADS, Inc. has spent $400,000 on research to develop a new computer game. The firm is planning to…
A: The cash flow statement refers to the statement showing the summary of the cash and cash equivalent…
Q: Sarah Jessica Parker is looking to buy a 2023 Toyota Camry car for twenty five thousand dollars.…
A: Compound = monthly = 12Present Value = pv = $25,000Interest rate = r = 7 / 12 %Monthly Payment = p =…
Q: Assume the CAPM holds. You are holding a portfolio with the beta of 0.9 and the standard deviation…
A: Risk-free rate, Rf = 3.5%Market return, Rm = 10%Market standard deviation, Sm = 16%Portfolio Beta, B…
Q: The price of the new share after dividends are paid is showing as incorrect?
A: Working Note#1Compute the amount of cash needed to finance the proposed dividend:Cash…
Q: Calculate the total asset turnover (sales / total assets) for the firm below. Make sure you do NOT…
A: Total asset turnover ratio measures the value of the firm sales relative to the value of the total…
Q: 14. Darrigo Grape received an invoice for $13 780 dated September 28, terms 5/20 R.O.G., from Nappa…
A: In the trade credit parlance R.O.G. stands for receipt of goods.Here 5/20 R.O.G means that a…
Q: Using the data in the following table, and the fact that the correlation of A and B is 0.62,…
A: Standard deviation of portfolio can be calculated belowwhereWA =weight of stock AWB =weight of stock…
Q: Thomas is planning to withdraw $8000 from a savings account at the end of each quarter for four…
A: The present value of future amount of annuities to be withdrawn will give the amount that must be…
Q: Sunrise, Incorporated, is trying to determine its cost of debt. The firm has a debt issue…
A: The given problem can be solved using RATE function in excel.The formula to calculate the pretax…
Q: The Clifford Corporation has announced a rights offer to raise $72 million. The stock currently…
A: The Clifford Corporation has announced a rights offer to raise $72 million. A rights offer is a way…
Q: Consider the following table, which gives a security analyst's expected return on two stocks and the…
A: In the given case, we have provided the probability of each scenarios and their respective market…
Q: A firm has CA of $500 in 2021 and CL of $300 in 2021. They then have CA of $700 in 2022 and CL of…
A: Current assets are those that are created out of daily business operation and are converted into…
Q: KADS, Inc. has spent $360,000 on research to develop a new computer game. The firm is planning to…
A: Variables in the question:Cost of machine=$160,000 Shipping and installation costs of the…
Q: The following table shows the revenue and expenses of DYI Stores Ltd, a high street chain selling…
A: Variables in the question:YearRevenue (£)Expenses (£)Actual Profits (£)Budgeted Profits…
Q: Oren Manis has a division that makes burlap bags for the citrus industry. The division has fixed…
A: Break-even sales refer to the level of sales at which a company's total revenue equals its total…
Q: Brianna is buying a house for $130,000 . She plans to make a 12% down payment. Closing costs include…
A: Cost of Home$130,000Down payment rate12%Cost of home insurance$550Property tax$1,050Title…
Q: What are some examples of loan documents?
A: Loan Document:When taking out a loan, the borrower and lender enter into a legal agreement that…
Q: Lush Gardens Co. bought a new truck for $50,000. It paid $5,500 of this amount as a down payment and…
A: When the borrower borrows a loan from the borrower, he has to pay a rate of interest on the borrowed…
Q: Year 2009 2010 2011 2012 2013 2014 2015 2016 PSB 2017 2018 Average % (=AVERAGE) SD (%) (=STDEVP) SD…
A: In the world of finance, beta is a measure of how volatile or systematic a security or investment is…
Q: Corporation X can issue straight 5-year debt (bonds) at a yield to maturity of 5%. If a 5-year at-…
A: Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it…
Q: X an indian company wishes to borrow usd at fixed rate. Y, a us company wishes to borrow in indian…
A: Swaps are contracts in which two parties exchange financial instruments or cash flows. They are…
Q: Your parents will retire in 26 years. They currently have $360,000 saved, and they think they will…
A: Interest rate refers to the charge that is paid by the borrower to the lender on the amount of…
Q: Talent Inc. is considering a project that has the following cash flow data. What is the project's…
A: The payback period represents the period in which the initial outlay cost of an investment is…
Suppose the going one year interest rate in the U.S. is 3% while it is 1% in the Japan. Furthermore, the going exchange rate is 110 Japanese yen/ U.S. dollar. What is the effective financing rate in the U.S. from borrowing in Japan?
-2%
2%
1%
Not enough information is provided.
Step by step
Solved in 3 steps
- The interest rate in Japan is 0.5% and the interest rate in the US is 4.5%. The spot exchange rate is ¥100 per dollar and the one year ahead forward rate is ¥98 per dollar. What is the profit made via covered interest arbitrage if you start by borrowing 1 million yen and investing in the US market? Assume borrowing and lending rates are identical. State the profits in dollars.Use the information below to answer the following questions. Currency per U.S. $ 1.2380 1.2353 Australia dollar 6-months forward Japan Yen 6-months forward U.K. Pound 6-months forward 100.3600 100.0200 .6789 .6784 Suppose interest rate parity holds, and the current six month risk-free rate in the United States is 5 percent. Use the approximate interest rate parity equation to answer the following questions. a. What must the six-month risk-free rate be in Australia? (Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What must the six-month risk-free rate be in Japan? (Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Australian risk-free rate b. Japanese risk-free rate c. Great Britain risk-free rate c. What must the six-month risk-free rate be in Great Britain? (Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) % % %A3) Finance Currently, the GBP/USD rate is 1.5050 and the three-month forward exchange rate is 1.5269. The three-month interest rate is 6.2% per annum in the U.S. and 4.1% per annum in the U.K. Assume that you can borrow £1,000,000 or its equivalent in USD. How much do you make/lose if you borrow the local currency and invest abroad? (USD, no cents)
- (Problem 3) Currently, the spot exchange rate is $1.50/£ and the three-month forward exchange rate is $1.52/£. The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per annum in the U.K. Assume that you can borrow as much as $1,500,000 or £1,000,000. 1. Determine whether the interest rate parity is currently holding (just enter either yes or no): 2. If the IRP is not holding, compute and enter the total amount of arbitrage profit in dollars round to zero decimal. A positive number means profit. A negative number means loss) 3. If the IRP is not holding, compute and enter the total amount of arbitrage profit in pound i.e., round to zero decimal. A positive number means profit. A negative number means loss) (just enter yes or no) (if your profit is $2,000.00, just enter "2,000", i.e., (if your profit is 2,000.00 pound, just enter "2,000",Use the following interest rate assumptions: U.S. = 5.5% Euro = 7.5% If a U.S. firm borrows in euros, the euro would have to ____ against the dollar by ____ in order to have the same effective financing rate from borrowing dollars. Select one: a. depreciate; about 1.86% b. appreciate; about 1.93% c. appreciate; about 1.90% d. depreciate; about 1.93%3. The interest rates are 4% in Japan and 5% in the United States. The current exchange rate is 113 yen per dollar. What is the expected forward exchange rate?
- a. In New Zealand, the one-year interest rate is 6%. The one-year interest rate in the United States is 10%. The New Zealand dollar (NZ$) has a spot rate of $.50. The New Zealand dollar has a forward rate of $.54. i. Explain if covered interest arbitrage can benefit US or New Zealand investors. i. Explain why covered interest arbitrage is or is not conceivable in each situation.(b)Suppose that the annual interest rate is 5% in the U.S and 8% in the UK and that the spot exchange rate is $1.80 to the UK pound sterling. Consider that the forward exchange rate , with one -year maturity, is $1.78 to the pound sterling. If an arbitrager has the capacity to borrow either $1,000,000 or the pound sterling equivalent at the current spot foreign exchange rate, (b1)Evaluate the feasibility of covered interest arbitrage for this investor. (b2)Determine the profit that the investor could earn upon conclusion of the investment process. (b3)Briefly discuss the realignment process that would close the opportunities for further arbitrage.One year borrowing and deposit interest rates are 12.5% and 10.5% respectively in the US and 10.5% and 8.5% respectively in Germany. The spot exchange rate for the US dollar is $1.50 to the EURO. The 12-month forward rate is $1.55.i) Assuming you do not have any initial investment funds, suggest a way you might profit from the pricing inconsistency presented above. Start with a borrowing amount and then explain and calculate the gain/loss with the rates that you will borrow and deposit.ii) Will the situation persist forever? Explain your answer.
- Suppose the exchange rate for Japanese yen, S0, is currently Yen160 = $1. If the interest rate in the United States is RUS = 10% and the interest rate in Japan is Rj = 7%, then what must the forward rate be to prevent covered interest arbitrate?As a US multinational you decide to borrow long-term debt of 1 million JPY at 10% for one year. The exchange rate on the date you borrowed the debt is 100 JPY/$ and the exchange rate on the date you repaid the debt is 120 JPY/$. The Japanese inflation rate during the year is 6% and the US inflation rate is 4%. What is the nominal cost of borrowing the JPY debt in US$ terms? a) -8.33% b) -11.83% c) -12.33% d) +11.83%Suppose that the annual interest rates on 6-months borrowing in Romania and the United States are 12.7 % and 0.8 %, respectively. The current spot rate RON/US$ is 4.00 and 6-months forward rate RON/US$ is 4.21. Would it be as a result of covered/uncovered interest arbitrage?