Vhich of the following is an example of arbitrage? O A. An investor, seeing that the price of palladium on the metals exchange in two different countries is slightly different, buys on one and sells on the other to make a profit. O B. A firm buys $250,000 of palladium today, with an option to sell it at $275,000 in one year if interest rates rise above 10%. O C. An inventor of a new hydrocarbon cracking technology based on palladium buys this metal knowing that its price will rise when the technology is adopted. OD. A metals merchant is offered $108,000 in one year for $100,000 of palladium today, when the interest rate is 10%.

Vhich of the following is an example of arbitrage? O A. An investor, seeing that the price of palladium on the metals exchange in two different countries is slightly different, buys on one and sells on the other to make a profit. O B. A firm buys $250,000 of palladium today, with an option to sell it at $275,000 in one year if interest rates rise above 10%. O C. An inventor of a new hydrocarbon cracking technology based on palladium buys this metal knowing that its price will rise when the technology is adopted. OD. A metals merchant is offered $108,000 in one year for $100,000 of palladium today, when the interest rate is 10%.

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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When you logged on to your brokerage account this morning, you saw that the Brazil Real is trading at 50.2970. Gold is trading at $200 per ounce. You have $10,000 to invest, and you think you might be able to make arbitrage profits in the gold market. How many Reals could you buy at the posted price? How much gold could you buy at the dollar price in the gold market? What would the gold be worth if the Real price is 750 BRL per ounce? If the Real price for gold is 750 BRL per ounce, how would you make arbitrage profits? How much would you make with your $10,000 investment?
Show your work. Make it clear what the final answer is.
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H4. Work out the value of European Call on a risky asset A, currently selling at $600. The European Call has a term to maturity of 1.5 years and a strike price of $675. SD(dA/A), the volatility of returns on the risky asset is 18% per year, and the discrete risk-free rate is 0.9% per year
DCC exports high-speed digital switching networks, and their largest and most important clients are in Asia. A recent financial crisis in Asia has diminished the prospects of new sales to the Asian market in the near term. However, you believe that DCC is a good investment for the long term. Suppose you hold 1,000 shares of DCC and the following two options are available in the market: (a) Call A: Delta = 0.6674, Gamma = 0.0176 (b) Call B: Delta = 0.574, Gamma = 0.019 What should be the options holdings if the combined stock and options portfolio is both delta and gamma-neutral (up to two decimals)? Assume that one option contract is based on 100 units of the stock. O a. Short 73.7 contracts of Call A and long 68.27 contracts of Call B O b. Long 73.7 contracts of Call A and short 68.27 contracts of Call B Short 68.27 contracts of Call A and short 73.7 contracts of Call B O d. Long 73.7 contracts of Call A and long 68.27 contracts of Call B
Suppose a U.S. investor wishes to invest in a British firm currently selling for £40 per share. The investor has $10,000 to invest, and the current exchange rate is $2/£. a. How many shares can the investor purchase? Number of shares = b. Fill in the table below for rates of return after one year in each of the nine scenarios (three possible prices per share in pounds times three possible exchange rates). (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.) Price per Share (£) Pound-Denominated Return (%) Dollar-Denominated Return (%)for Year-End Exchange Rate $1.80/£ $2/£ $2.20/£ £35 % % % % % % £40 % % % % % % £45 % % % % % %
FÐI may involve mergers with and acquisitions of existing foreign businesses. Select one: O True O False From the perspective of the writer of a put option written on C52,500. it the strike price is $1.25/e, and the option premium is $2,625, at what exchange rate do you start to lose money? Select one: O a $1.2/c O b $1.20/€ O c. S1.30/€ O d $1.52/e
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2 - A pontfolio manager at Superior Trust Company is structuring a fixed-income port- folio to meet the objectives of a client. This client plans on retiring in 15 years and ‘wants a substantial lump sum at that time. The client has specified the use of AAA- rated securities. The portfolio manager compares coupon U.S. Treasuries with zero-coupon stripped U.S. Treasuries and observes a significant yield advantage for the stripped ‘bonds: Coupon Zero-Coupon Stripped Term (Years) U.S. Treasuries U.S. Treasuries —_— 3 550% 5.80% 5 6.00 660 7 675 725 10 725 7.60 15 7.40 780 30 7.75 820 Mydamuwhymwsﬁwdu&mmm“_ ‘coupon U.S. Treasuries with the same final maturity. 3
Ali is specialized in Cross-rate arbitrage. He notices the below quotes: CHF1.5971 = 1USD; AUD1.8215 = 1USD; AUD1.1440 = 1CHF. By ignoring transaction cost. Does Ali have an arbitrage opportunity on these quotes?In case of any arbitrage opportunity, what steps has to be taken to achieved, if he has USD1,000,000 available for this purpose.
Suppose IBM signed a contract to buy a supply of computer chips from a German firm. Theprice is 10 million euros, and the chips will bedelivered immediately, but IBM can delay payment for six months if it wants to. What riskwould IBM be exposed to if it delays payment?Can it hedge this risk? Should it pay now ordelay payment?

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