Scenario Suppose that there are no dividends paid by Google and the interest rate for borrowing and lending are 5% per annum respectively. Discuss b. How could you make money through arbitrage if the June and December forward contracts trade at the same price? c. How would things change if the dividends from June to December are $5? d. How would things change if the borrowing rate is 5.5% and the lending rate is 4.5%

Scenario Suppose that there are no dividends paid by Google and the interest rate for borrowing and lending are 5% per annum respectively. Discuss b. How could you make money through arbitrage if the June and December forward contracts trade at the same price? c. How would things change if the dividends from June to December are $5? d. How would things change if the borrowing rate is 5.5% and the lending rate is 4.5%

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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After a 1 year investment you receive 7.4% interest (nominal) from your bank. However, looking at how prices have changed, you soon realize that the real rate of interest was actually 3.4%. How much was inflation during that year? Enter your answer as a percentage, rounded to 2 decimals, and without the percentage sign ('%'). For example, if your answer is 0.02345, then enter 2.35
4. Non annual compounding period The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and future values of cash flows. An investor can invest money with a particular bank and earn a stated interest rate of 11.00%; however, interest will be compounded quarterly. Complete the following table by computing the nominal (or stated), periodic, and effective interest rates for this investment opportunity. Interest Rates Nominal rate : Periodic rate Effective annual rate Clancy needs a loan and is speaking to several lending agencies about their interest rates and loan terms. He particularly likes his local bank because he is being offered a nominal rate of 10.00%. However, since the bank is compounding its interest semiannually, the loan will impose an effective interest rate of on his loan. Another bank is also offering favorable terms, so Clancy decides to take a loan of $15,000 from this bank. He signs the loan…
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Q2. Suppose you borrowed $ 15 000 at 8% monthly interest to repay it in monthly installments over 4 years. At the end of the first year (after 12 payments), you want to negotiate with the bank to pay off the remainder of the loan as in the following plan: The next payment will be made in the sixth month of the 2nd year in the amount G and will continue to increase linearly in the amount G every 3 months. Then what is G?
Please answer quickly and correctly
Q3. You borrow $5000 today. The loan is due in 5 years, with interest at ji = 7%. It is agreed that you can instead pay $1000 one year from now, $X two years from now and $2000 three years from now. If money is worth j4= 8%, what is the value of X?
Analyze the implications of interest rate changes on the original calculation (Origninal WACC 8%). What are the consequences or benefits for WACC decreasing? What are the consequences or benefits for WACC increasing?
5. You want to issue a short-term loan for your company in 3 months. To hedge the risk due to interest rate change, you can long t-bill future short t-bill future long U.S. dollar future short U.S. dollar future
Please no written by hand solution Suppose you observe the following rates in a market. $0.80 = 1.0 euros $1.50 = 1.00 pounds 0.55 pound = 1.00 euro If you have $1 million, you will get arbitrage profits by buying a currency with $1 million, then buying another currency with the currency you bought, and lastly buying dollars with the currency you bought. The arbitrage profit with the operation will be ?
Please answer it in a comprehensive and detail manner with step by step algorithm. No excel's sheet solution.
2.
A loan of $5000 is taken out today. It is due with interest at j4 = 8% in 2 years. Instead, the borrower negotiates with the lender to pay $2500 in 1 year and $X in 3 years. If the lender can reinvest any payment at j₂ = 5%, what is the value of X? $3395.34 B. $2493.59 $3038.93 $3581.68