Please correct answer and don't used hand raiting and don't used Ai solution 15-Today's price of Apple (AAPL) is $150 per share. AAPL does not pay dividends. One yearfrom today, there are two possible states. In the u state, the economy is booming and theprice of AAPL is $225. In the d state, the economy is suffering and the price of AAPL is $75. Thec.c. risk-free interest rate is one percent. You are interested in a European call option on AAPLwith a strike of $150 and a maturity of one year. Assume there is no arbitrage. What is theprice of the call option? Round your answer to three decimal places.

Inputs RecapCurrent stock price (S0): $150Strike price (K): $150Stock price in upstate (Su):…

Answered: 15-Today's price of Apple (AAPL) is…

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter11: Managing Transaction Exposure

Section: Chapter Questions

Problem 57QA

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A. You want to invest in a riskless project in Sweden. The project has aninitial cost of SKr2.1 million and is expected to produce cash inflowsof SKr810,000 a year for 3 years. The project will be worthless afterthe first 3 years. The expected inflation rate in Sweden is 2 percentwhile it is 5 percent in the U.S. A risk-free security is paying 6percent in the U.S. The current spot rate is $1 = SKr7.55. What is thenet present value of this project in Swedish krona using the foreigncurrency approach? Assume that the international Fisher effect applies. B. In a recent e-news, you observe that the 6-month forward rate is $1.5031/ Euro. Further, if you invest the dollar, it fetches you interest atthe rate of 2% p.a. In comparison, the interest rate in Eurozone is 1%p.a. You also see that CAD 1.5513 are needed to purchase a Euro and CAD1.332 are needed to buy a US$. Is it possible for you to make an arbitrageprofit? If so, which of the arbitrage strategies will you employ andwhat will be…
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Bak Assume that Richelle Corp imported goods from New York and needs 145,000 New York dollars 180 days from now. It is trying to determine whether to hedge its position. Richelle has developed the following probability distribution for the New York dollar Possible dollar value in 180 days HAE $.45 $0.40 $0.43 $0.51 $067 $0.81 $16.095 and 75% $4653 and 4.5% $3,789 and -89% Probability $3.356 and 35% 5% 10% 30% The 180-day forward rate of New York dollar is $0.63, and the spot rate is $0.59. Determine the expected additional cost of hedging. What is the probability that hedging will be more costly to the firm that not hedging? 30% 20% 5%
Consider the following situation. It costs $1.2900 to purchase £1 for immediate delivery. UK interest rates are 0.75% p.a. US interest rates are 1.5% p.a. What must be the 1 year forward rate at which you can purchase £ with $? Assume that there is no default risk, no transaction costs, no bid-ask spreads, etc. Provide your answer to 4 decimatplaces, for example, if you think the answer is 1.2900 $/£, enter '1.2900' Answer:
am. 118.
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3
Kansas Corporation, an American company, has a payment of €5.9 million due to Tuscany Corporation one year from today. At the prevailing spot rate of 0.90 €/$, this would cost Kansas $ 6,555,556, but Kansas faces the risk that the €/S rate will fall in the coming year, so that it will end up paying a higher amount in dollar terms. To hedge this risk, Kansas has two possible strategies. Strategy 1 is to buy €5.9 million forward today at a one-year forward rate of 0.89 €/$. Strategy 2 is to pay a premium of $109,000 for a one-year call option on €5.9 million at an exchange rate of 0.88 €/$. Suppose that in one year the spot exchange rate is 0.85 €/$. What would be Kansas's net dollar cost for the payable under each strategy? Note: Round your answer to the nearest whole dollar amount. Suppose that in one year the spot exchange rate is 0.95 €/$. What would be Kansas's net dollar cost for the payable under each strategy? Note: Round your answer to the nearest whole dollar amount.
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A bank is considering two alternatives for handling its service calls in the next decade ( treat this as one period). The projected number of service calls is 10,000,000. If the bank sets up its own service call center in the U.S., the fixed cost is estimated to be $2,700,000, and the variable cost is calculated to be 32 cents per call. If the call service is outsourced to a foreign company, the fixed cost would be $240,000, and the unit charge would be 57 cents per call. (a)What is the break-even number of service calls? (b)Would the bank set up its own service call center or outsource call handlings? (Enter 1 for Produce or enter O for Outsource) (C)What would be the dollar amount that the bank can save by choosing the better option? (Cost difference between the two options)

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