The spot price of Timber is US$300. The 1-year forward price of gold is US$340. The 1-year US$ interest rate is 5% per annum. Is there an arbitrage opportunity?
Q: BC Corporation plans to issue pieces of 12%, 10-year, P1,000 face value bonds that pays semiannually...
A: Price of bond is sum of coupon payments and present value of par value of the bond. And yield to mat...
Q: Profit margin = 9.1% Capital intensity ratio = .52 Debt-equity ratio = .67 Net income = ...
A: Plow back ratio = 1 - Dividend / Net Income = 1- 50500 / 102000 =0.5049019608 = 50.49%
Q: You are buying a $10,000 second hand car with a down-payment of $3,000 and you finance the remaining...
A: Solution:- When a loan is taken, generally equal periodic installments are paid inclusive of interes...
Q: 4) Suppose you are a financial manager for the Shah Corporation and trying to decide between the fol...
A:
Q: QUESTION 6 From the following table calculate net income after tax for 2016? Amount ($) Description ...
A: Sales = 500,000 Cost of goods sold = 300,000 Depreciation = 65,000 Interest expense = 15,000 Selling...
Q: Bonnie plans to invest in a property that will yield $1,265 at the end of each m Bonnie's payments w...
A: Given that, Interest = 10.5% is compounded monthly. Compound Interest Formula,
Q: Assume the Central Intelligence Agency's World Fact Book reported that Afghanistan had a GDP of $78....
A: We will use the concept of time value of money here. As per the concept when determining the future ...
Q: Melissa wants to retire with $45,000 per month.she needs $4,500,000 in principal at the time she ret...
A: Simple interest is computed by multiplying the daily interest rate by the principal and later by nu...
Q: v Details Piease upload your hand written solution (pdf) to Canvas. You are creating a price-weighte...
A: Market value weight First, the market value of each asset in index is calculated by per asset price ...
Q: When finding the covariance, should 2 stocks be used or can it be calculated using 1 stock and the m...
A: Covariance is referred as the statistical toll, which helps in determining the relationship between ...
Q: Pielago has another excess fund amounting to P5,000,000. She is having difficulty whether to invest ...
A: Company requires funding for their investment which can be obtained from broadly two sources. Equit...
Q: Consider a European call option struck "at-the-money", meaning the strike price equals current stock...
A: With the given information, we will try to find out the precise value of delta,
Q: The simple interest rate charged If the principal and interest are to be paid in seven months, how m...
A: We need to use simple interest formula to calculate simple interest amount. The formula is Simple i...
Q: Which term relates to the beginning of a transaction in time value of money problems? Maturity date ...
A: Time value of money states that the money which is worth today will not be same as in the future.
Q: The future value of this cash flow would be the present value of this cash flow, assuming i = 2% A$1...
A: Future value = [Cash flow year 0 x (1 + r)3] + [Cash flow year 1 x (1 + r)2] + Cash flow year 3 ...
Q: Suppose the government decides to issue a new savings bond that is guaranteed to double in value if ...
A: Given: Bond cost (PV) $50 Years(NPER) 22 Future value(FV) $100
Q: Topic: Cost of Funds Solve the following cases using the Gordon Growth Model of determining the cos...
A: 1. Given, Return on Equity = 15% Payout rate = 30% Current dividend on ordinary share = p8 Dividend...
Q: 8.1 The term structure for (annual effective) interest rates is as follows for corresponding maturit...
A: a) We are required to find out the Swap Rate, and with the help of finding out the Present Value fac...
Q: QUESTION 17 1. A principal may not revoke an agency contract if the agent has an interest in the sub...
A: As per the guidelines in case of multiple question we are supposed to do the first question.
Q: her own business. She intends to pay back the loan with a series of $2,000 payments at the beginning...
A: Loans are paid by the monthly installments that carry the payment for interest and payment for princ...
Q: Pielago is eyeing for another company to invest her excess funds. She is interested in a publicly li...
A: Given: Year Dividend per share 2014 7.03 2015 7.05 2016 7.16 2017 7.21 2018 7.27 2019...
Q: You are to pay a bill in Meralco every month for 5 years. The accumulated amount of the payment you ...
A: Future Value with compounding other than annual With frequency of compounding in a year (m), annual...
Q: What is the micro-stop store's gross profit, if the total sales is P125,750.00 and the cost of sales...
A: Total sales = P125,750.00 Cost of sales ratio = 42.25%
Q: What is the economic order quantity for the following inventory policy. A firm sells 32,000 bags of ...
A: Annual sales = 32000 bags Cost per order = P100 Carrying cost = P0.85
Q: Galaxy Co. purchases rights to collect monthly rents from real-estate owners and securitizes it into...
A: Annual Coupon Payment = 40,000 Total Face Value = 1,000,000
Q: If a firm plans to issue new stock, flotation costs (investment bankers' fees) should not be ignored...
A: Cost of Equity: It refers to the cost of raising equity capital from the investors. The equity inve...
Q: Consider a T-bill with a rate of return of 5 percent and the following risky securities. From which ...
A: Risk Seekers: Risk seekers willing to pay for taking risk for getting more profits. ---------------...
Q: A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 7 years, ...
A:
Q: The manager responsible for the pension fund of Ruthin plc has to present a report to the Board of D...
A: Present value is defined as the current value of the future stream of funds or cash flows at the par...
Q: Consider a 15 year 6.5% semi-annual coupon bond whose duration is approx. 9.50 years when required r...
A: Time Period = 15 Years Coupon rate = 6.5% Yield to Maturity = 7.58% Duration = 9.50 Years
Q: Solve the following cases using the Gordon Growth Model of determining the cost of funds. (No Time P...
A: Given, Current dividend on ordinary share P8 Growth Rate ...
Q: : Identify the different types of annuities, calculate the present value and future value of both an...
A: Annuities are payments are that paid periodically each period these amounts are fixed ,variable and ...
Q: How much new long-term debt financing will Esther’s need this year to finance its expected growth?
A: Long Term Debt Financing: It refers to the financing of funds taken by the company in form of long-...
Q: What is the equations you use for the questions below to solve in excel?
A: The Gordon growth model: The Gordon Growth model recognizes that the dividends constitute income or ...
Q: A house owner plans to buy a fire insurance for his house worth $100000, suppose there is 10% chance...
A: The main purpose of fire insurance is to cover the person from various losses that may arise from fi...
Q: Cash flows cannot be added together unless
A: The concept of time value of money states that value of money and hence value of cash flows changes ...
Q: . What is the inventory turnover? (Do not round intermediate calculations and round your answer to 2...
A: Inventory Turnover: Inventory turnover refers to the number of times a firm is able to replace its ...
Q: ing are some of the factors that influence the market price of a corporation: I. Industry prospe...
A: Step 1 These internal and external factors can be used by investors to anticipate stock prices. Inte...
Q: Question: Engr. Odon is paying a loan five thousand pesos 2% monthly for 3 years. If the payment is ...
A: Annuities are financial contracts that provide a stable cash flow, typically to retirees. The accumu...
Q: Ezekiel Enterprises recently made a large investment to upgrade its technology. While these improvem...
A: As Ezekiel enterprises recently made a large investment to upgrade its technology. A part of net inc...
Q: Eyes.com has a new issue of preferred stock it calls 20/20 preferred. The stock will pay a $20 divid...
A: The value of preferred stock will be the present value of the perpetual dividend to be paid over the...
Q: Find the present values of the following cash flow streams. The appropriate interest rate is 8%. (Hi...
A: Present value can be calculated by discounting the cash flow at an appropriate discounting rate. In ...
Q: Lenlen decided to buy her first car, Toyota Vios 2020 model with selling price of P681,000. She init...
A: Here, Selling price of the car = P681,000 Down payment = P81,000 No. of years = 5 years Annual rate ...
Q: What is the coupon rate for the bond? Assume semi-annual payments. Answer as a percent! Bond Coupon ...
A:
Q: Answer the following probiems. 1. Rose Anne wants to buy a house and she was offered by the followin...
A: The current price of asset is equal to the sum of down payment and present value of all the the inst...
Q: Bon Chance, Inc., has an odd dividend policy. The company has just paid a dividend of $11.00 per sha...
A: Current Share Price can be calculated by adding the present values of future dividends Dividend paid...
Q: What will the bond sell for today?
A: Bond: It is a debt instrument issued by the company to raise debt capital from the investors. The in...
Q: How large must the deposit be? $ How much will be in the account immediately after you make the ...
A: Present Value of Annuity: It is the present worth of the future annuity payments made at the end o...
Q: 7. Bond Yields Parkway Void Co. issued 15-year bonds two years ago at a coupon rate of 5.4 percent. ...
A: Par value = $1000 Bond price = 106% of Par value = $1060 Periods till maturity (n) = 13 years = 26 p...
Q: Some recent financial statements for Smolira Golf, Inc., follow. SMOLIRA GOLF, INC. Balance Sheets a...
A: Solution:- Debt equity means the ratio of debt to the equity in the capital structure of the company...
The spot price of Timber is US$300. The 1-year forward price of gold is US$340. The 1-year US$ interest rate is 5% per annum. Is there an arbitrage opportunity?
F = S (1+r)T
Spot price (S)
Forward price (F)
Contract deliverable in years (T)
Risk-free rate of interest (r)
Step by step
Solved in 2 steps
- Suppose that the spot price of gold is US$1,700 per ounce. The quoted 1- year forward price of gold in the market is US$1,800, whereas it should have been $1,785. The 1-year US$ interest rate is 5% per annum. On the basis of the given information, answer the following: a) Is there an arbitrage opportunity? Why? b) If there is an arbitrage opportunity, show how will you exploit it? What will be the arbitrage profit? Hint: Recall that arbitrage means exploiting mispricing in the market to your advantage and any profit thus gained is risk-free. Use this understanding…Work out the value of European Call on a risky asset A, currently selling at $600. The European Call has a term to maturity of 1.5 years and a strike price of $675. SD(dA/A), the volatility of returns on the risky asset is 18% per year, and the discrete risk-free rate is 0.9% per yearThe spot rate: USD 1.21/EUR 2-year USD YTM=0.11% 2-year EUR YTM= -0.72%. Suppose that you invest in the strategy known as the "carry trade". What will be your profit/loss if the spot rate in 2 years is USD 1.00/EUR. PROFIT = $1,100 or THERE IS NO ARBITRAGE OPPORTUNITY IS AN INCORRECT ANSWER
- The spot price of gold is US $1000/oz. The quoted 1-year forward price of gold is US $ 1100/oz. The 1-year US$ interest rate is 5% per annum No income or storage costs for gold Is there an arbitrage opportunity?Suppose the gold price is $300/oz., the 1-year forward price is 310.686, and the continuously compounded risk-free rate is 5%. a. What is the lease rate? b. Demonstrate a cash-and-carry strategy that provides the zero cash flow at time 0 and the maturity date. (You borrow to buy gold, sell the gold forward, and lend the gold, earning the lease rate.) c. What is the return on a cash-and-carry strategy in which gold is not loaned? (You borrow to buy gold and sell the gold forward.)Assume that spot rate of New Zealand dollar is AUD 0.64/NZD, the 1-year forward rate of New Zealand dollar is AUD 0.62/NZD, 1-year interest rate on NZD is 9% and 1-year interest rate on AUD is 6%. If there is a possible arbitrage opportunity, the appropriate arbitrage strategy should be and the rate of return from covered interest arbitrage would be arbitrage; %. Select one: a. Inward; 0.38 b. Outward; 9.42 c. Inward; 9.42 d. Outward; 0.38
- 2. Consider a European put with an exercise (strike) price of 5.00 and with 6 months to maturity. The underlying asset has a volatility of 30% and the riskless rate is 5% per year. Estimate a numerical upper bound for the asset price S(t) (to nearest 0.01) at which an European put will sell below its intrinsic value of max(E – S(t), 0). (Compute P(S, t) and E – S(t) for some values of S(t) below the strike price. Compute P(S, t) to at least 3 decimal places.)You are an investor in the world where short-selling assets is prohibited. Suppose that the price of asset X in period 0 is $200. This asset will pay a dividend of $8 one year from now in period 1. Let the riskless interest rate from 0 to period q be 5%.Assume the price for a future contract delivery in period 1 is $210. a) Can you make an arbitrage profit when $210 is the price? If so, state specifically what financial transaction? b) Now, assume the price for a futures contract with delivery in period 1 is K190. Can you make an arbitrage profit when this is the price? If so, state specifically what financial transaction you would make in 0 and period 1 to realize a profit. If not, explain?A Credit Default Swap is structured like the one below for a protection of $100 million. If payments are made annually, what are the cash flows from A to B if there is a default after 2 years and 2 months and recovery rate is 40%? And what are the cash flows from B to A? 70 bps per year Default Default Protection Protection Buyer, A Seller, B Payoff if there is a default by reference entity=100(1-R)
- (1) A single payment security matures in 100 days and has a maturity value of $50,000. What would be price be if: (a) A discount rate of 3% is applied (b) A discount rate of 8% is applied Assume that this is a U.S. security, so Days in a Year (diy) is 360.The current spot price of gold is $1200 per ounce. The riskless interest rate is 10% per annum. For simplicity, assume there are no storage/security costs of gold. a) What is the arbitrage-free forward price for the delivery of gold in 8 month's time?1 - year futures price of gold is Rs. 500/g. What should be the 2 year futures price of gold assuming an annual interest rate of 10% and there are no transaction costs? If a 2 year future's price on gold is Rs. 560/g, what kind of arbitrage opportunity arises and how are you going to earn that arbitrage profit? If a 2 - year futures price on gold is Rs. 540/g. what kind of arbitrage opportunity arises and how are you going to earn that arbitrage profit ?