Finance Answers

A US based IT firm required GBP 100000 in 180 days. The company feels that exchange rates are expected to fluctuate in the next 6 months. Their near accurate estimate based on a good quality research were as below:

Current Rate of GBP = USD 1.50

180 days forward rate for GBP = USD 1.48

Call premium USD 0.02 (strike price of USD 1.50 for 180 days)

Interest Rates in London for deposits – 4.5% and for loans – 5.1%

Interest Rates in New York for deposits – 4.5% and for loans – 5.1%

A fair estimate of exchange rate after 180 days is expected to be USD 1.44 with a probability of 20%, USD 1.46 with a probability of 60% and USD 1.53 with a probability of 20%.

Advise the company on a good hedging strategy. Make suitable assumptions if required and state the same.

I am 18 years old. I attend the local vocational-technical school. My area of study is commercial

heating and cooling. My school tuition is relatively low and I will complete my program of study

in nine months. I can pay most of my expenses by working full-time in the summer and part-

time during the school year. I am still living at home, and I plan to get an apartment of my own

next year. I am an avid sports fan. I have a little 12-inch television. I'd like to use my credit card

to buy a flat screen 65-inch television set at a cost of $1 ,300.

Identify and describe an appropriate investment objective and set of investment constraints for the Maphosa foundation.

4. a. Someone in the 36 percent tax bracket can earn 9 percent annually on her investments

in a tax-exempt IRA account. What will be the value of a one-time $10,000 investment

in 5 years? 10 years? 20 years?

b. Suppose the preceding 9 percent return is taxable rather than tax-deferred and the taxes

are paid annually. What will be the after-tax value of her $10,000 investment after 5, 10,

and 20 years?

D1, to be $1.60 and it expects dividends to grow at a constant rate g = 4.1%. The firm's current common stock price, P0, is $25.00. If it needs to issue new common stock, the firm will encounter a 4.8% flotation cost, F. 

If yield curves, on average, were upward slopping, what would this say about the liquidity (term) premiums in the term structure? Would you be willing to accept the expectations theory? Why or Why not?

Year return (HPY) of C return (HPY) of F

2016 −18.00% −14.50%

2017 33.00% 21.80%

2018 15.00 % 30.50%

2019 −0.50% −7.60%

2020 27.00% 26.30%

Required

Calculate the geometric rate of return for each stock during the 5-year period. (6mks)

Calculate the standard deviation of returns for each stock. (10mks)

Calculate the coefficient of variation for each stock. (2mks)

If you are a risk-averse investor then, assuming these are your only choices, discuss whether you would prefer to hold Stock C or Stock F. (2mks)

1. You are considering the purchase of BIG Company’s common stock. You anticipate that the company will pay dividends of RM2.00 per share next year and RM2.25 the following year. You anticipate that after the second year, the dividend is going to grow at a constant rate of 5 percent per year indefinitely. However, you plan to hold the stock for only four years, and you believe that you can sell the stock for RM20.50 per share at that time. If your required rate of return is 12 percent, what is the maximum price that you would pay for a share of BIG Company stock?
2. A company is preparing to pay its first dividend. It plans to pay RM1.00, RM2.50 and RM5.00 a share over the next three years respectively. After that, the annual dividend will be fixed at RM1.25 per share for the next 10 years before it levels off at a constant growth rate of 3 percent indefinitely. The current market price of the stock is RM22. If you demand a 10 percent rate of return, will you purchase this company’s common stock?

True/False Statements: First, circle the right answer for the following statements, and then

provide your explanations. No marks will be awarded without correct explanations. (4 marks each) 1) If there is constant relative risk aversion, then there must be decreasing absolute risk aversion. True False

Describe how the prevailing interest rates in a country affect its exchange rates with the currency of its major trading partner.