Problem 25-4 Suppose a U.S. investor wishes to invest in a British firm currently selling for £90 per share. The investor has $36,000 to invest, a he current exchange rate is $2/£. Consider three possible prices per share at £88, £93, and £98 after 1 year. Also, consider three possible exchange rates at $1.8/£, $2/£, and $2.2/£ after 1 year. Calculate the standard deviation of both the pound- and dollar- denominated rates of return if each of the nine outcomes (three possible prices per share in pounds times three possible exchan ates) is equally likely. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Standard deviation of pound-denominated return % Standard deviation of dollar-denominated return %

Problem 25-4 Suppose a U.S. investor wishes to invest in a British firm currently selling for £90 per share. The investor has $36,000 to invest, a he current exchange rate is $2/£. Consider three possible prices per share at £88, £93, and £98 after 1 year. Also, consider three possible exchange rates at $1.8/£, $2/£, and $2.2/£ after 1 year. Calculate the standard deviation of both the pound- and dollar- denominated rates of return if each of the nine outcomes (three possible prices per share in pounds times three possible exchan ates) is equally likely. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Standard deviation of pound-denominated return % Standard deviation of dollar-denominated return %

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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25-A UK trader imported goods from US for $ 50,000 and the spot rate GBP 0.500 = 1 USD. The UK importer expected that GBP may appreciate by 4% after 30 days. What will be the new exchange rate after thirty days for 1 GBP? (consider the first 4 decimals to select the correct answer) a. None of the options b. USD 2.0833/GBP c. GBP 0.4900/USD d. USD 0.5000/GBP
Ee 175.
9
Mr liam want to invest Us$700,000 on mexico. interest rate per year inflation rate per year US 1.49% 1.27% Mexico 6.47% 3.38% Nominal Exchange Rates -Spot 19.780 Pesos=US $1-One-year forward 19.790 Pesos=US $1 The future spot exchange rate(St) is 19.650 Pesos=US $1. Calculate the arbitrage portfolio and assess how to construct the arbitrage portfolio based on the calculations.
Risk A1 Q3-2i Question 3. Currency Option Pricing with Binomial Model On January 11, the spot exchange rate for the U.S. dollar is $0.70 per Canadian dollar. In one year’s time, the Canadian dollar is expected to appreciate by 20 percent or depreciate by 15 percent. We have a European put option on U.S. dollars expiring in one year, with an exercise price of 1.39 CND$/US$, that is currently selling for a price of $2.93. Each put option gives the holder the right to sell 10,000 U.S. dollars. The current one-year Canadian Treasury Bill rate is 2 percent, while the one-year U.S. Treasury Bill rate is 3 percent, both compounded annually. Treat the Canadian dollar as the domestic currency. 2. i. Calculate the estimated value of this put option for Canadian T-Bill rates of 0%, 1%, 2%, 4%, 5%, and 6%. Plot these values in a graph (by hand or using Excel), with put option values on the y-axis and Canadian T-bill rates on the x-axis.
18.3 Grenouille Properties. Grenouille Properties (U.S.) expects to receive cash dividends from a French joint venture over the coming three years. The first dividend, to be paid one year from now on December 31, is expected to be €720,000. The dividend is then expected to grow 10.0% per year over the following two years. The current exchange rate is $1.1940 = €1.00. Grenouille's weighted average cost of capital is 12%. a. What is the present value of the expected euro dividend stream if the euro is expected to appreciate 4.00% per annum against the dollar? b. What is the present value of the expected dividend stream if the euro were to depreciate 3.00% per annum against the dollar?
Question (1) suppose the british pound U-S dollar exchange rate is currently So=£.50.Further suppose that the inflation rate in Britain is predicted to be 10percent over the year ,coming year and(for the moment)the inflation rate in the United States is predicted to be zero.What do you think the exchange rate will be in a year
Question 24 Suppose the spot rate is A$1.77/GBP. An Audi can be purchased in Sydney, Australia, for A$30,000 or in London, United Kingdom, for £17,860. The real interest rate is 3.5% p.a. for AUD and 1.5% for GBP, a) Calculate the real exchange rate of Sydney Audi per London Audi Is the real exchange rate consistent with the prediction of the absolute PPP? Explain b) Suppose the real interest parity holds, calculate the expected real exchange rate of per London Audi. Will the change in the real exchange rate lead to an increase in the Australia? Explain. y Audi ports of Edit View Insert Format Tools Table 12pt Paragraph BIU AV2v T²V 2 120 ***
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Problem 19-4 (Algo) Required: Suppose a U.S. investor wishes to invest in a British firm currently selling for £33 per share. The investor has $66,000 to invest, and the current exchange rate is $2/£. Consider three possible prices per share at £31, £36, and £41 after 1 year. Also, consider three possible exchange rates at $1.60/£, $2/£, and $2.40/£ after 1 year. Calculate the standard deviation of both the pound- and dollar- denominated rates of return if each of the nine outcomes (three possible prices per share in pounds times three possible exchange rates) is equally likely. (Do not round intermediate calculations. Round your percentage answers to 2 decimal places.) X Answer is complete but not entirely correct. Standard deviation of pound-denominated return Standard deviation of dollar-denominated return 12.37 19.68 %
Question 2 You have the opportunity to store your hard-earned money in a French or a Japanese bank account. The Japanese bank account promises an interest rate of 2% a year. If you deposit 1000 Euro in the French bank account, interests will accrue so that you will have 1105 Euros in two years. Today's exchange rate is 1 Euro to 129.60 Yen. a) What should the 1-year forward exchange rate be for you to be indifferent between the two accounts? Make sure you explain what theories justify your calculations b) If the yearly inflation rate for France is 4%, what do you expect the Japanese inflation to be?
5. A U.S. firm expects a receivable (cash inflow) of €1,000,000 in six months. The current exchange rate is $1.125/€. Firm wants to sell euros in six months (to convert the inflow into dollars). Consider 3 possible spot prices in six months. 1. $1.195/€ 2. $1.100/€ 3. $1.025/€ What kind of option, put or call, is appropriate to hedge with? In each scenario, what is the total amount of the firm's NET receivable? NET receivable implies you should consider the receivable as well as the hedging costs of buying the option. (Assume an option exercise price of $1.130/€ and option premium of $.016/€) | 1. 2. 3.

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