Gm520 Week 2 Homework Assignment

Unformatted text preview: Brian Lin D01278742 Week 7 Homework Chapter 17 Questions Problem 17-2 Six-month T-bills have a nominal rate of 7%, while default-free Japanese bonds that mature in 6 months have a nominal rate of 5.5%. In the spot exchange market, 1 yen equals $0.009. If interest rate parity holds, what is the 6-month forward exchange rate? T-Bill Nominal Rate = 7% J-Bond Nominal Rate = 5.5% 1 Yen = $0.009 1 US = 111.11 Yen 6 Month US Rate = 3.5% 6 Month Japan Rate = 2.8% 6-Month Forward Exchange Rate US Dollar/Yen = (1+3.5%)*0.009/(1+2.8%) 6-Month Forward Exchange Rate US Dollar/Yen = 0.00907 Problem 17-3 A television set costs $500 in the United States. The same set costs 550 Euros in France. If purchasing power parity holds, what is the spot exchange rate between the euro and the dollar? TV = $500 TV = 550 Euro Spot Exchange Rate b/w Euro and US Dollar = 550/500 or 500/550 Spot Exchange Rate b/w Euro and US Dollar = $1 = 1.1 Euro and 1 Euro = $0.9091 Problem 17-10 Early in September 1983, it took 245 Japanese yen to equal $1. Early in September 1983, it took 245 Japanese yen to equal $1....
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Brian Lin D01278742 Week 3 Homework Chapter 8 Questions Problem 8-1 A call option on the stock of Bedrock Boulders has a market price of $7. The stock sells for $30 a share, and the option has a strike price of $25 a share. What is the exercise value of the call option? What is the option’s time value? Stock Price $30 (a) Strike Price $25 (b) Price of Option $7 (c) Exercise Value of Option $5 (d) = (a) – (b) Time Value of Option $2 (c) – (d) Problem 8-2 The exercise price on one of Flanagan Company’s options is $15, its exercise value is $22, and its time value is $5. What are the option’s market value and the price of the stock? Exercise Value of Option $22 Exercise Price of Option $15 Time Value of Option $5 Option’s Market Value $27 (Exercise Value of Option + Time Value of Option) Price of the Stock $37 (Price of Stock – Exercise Value of Option = Exercise Price of Option) Chapter 15 Questions Problem 15-8 The Rivoli Company has no debt outstanding, and its financial position is given by the following data: Assets (book = market) = $3M EBIT = $500K Cost of Equity, r s = 10% Stock Price, P0 = $15 Shares Outstanding = 200,000 Tax Rate, T (Fed-plus-state)= 40% The firm is considering selling bonds and simultaneously repurchasing some of its stock. If

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