Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 5, Problem 39P
In the summer of 2008, at Heathrow Airport in London, Bestofthebest (BB), a private company, offered a lottery to win a Ferrari or 90,000 British pounds, equivalent at the time to about $180,000. Both the Ferrari and the money, in 100-pound notes, were on display. If the U.K. interest rate was 5% per year, and the dollar interest rate was 2% per year (EARs), how much did it cost the company in dollars each month to keep the cash on display? That is, what was the
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Jeanette Johnson is going to Saudi Arabia next week for Spring break. She inquires about the rate of exchange between the US dollar and the Riyal (the currency of Saudi Arabia). She is then informed by a teller at Bank of America in San Francisco that the bank’s current bid rate is R/$ = 3.7505, while their offer rate is R/$ = 4.0000. Coincidentally, she meets Al Freddy, a friend of hers, who just arrived from Saudi Arabia and who would like to convert his Riyals into dollars at the same Bank.
Which of these two rates from Bank of America is applicable to Jeanette Johnson? [Remember: Jeanette who is going to Saudi Arabia has dollars that she wants to exchange against Riyals].
A. bid rate.
B. offer rate.
C. both the bid and offer rates
D. neither the bid nor the offer rate.
On your post graduation celebratory trip you decide to travel to Munich, Germany, to Moscow, Russia. You leave Munich with 15,000 euros in your wallet. Wanting to exchange all of them for Russian rubles, you obtain the following quotes:
Spot rate on the dollar/euro cross rate: $1.3214/E
Spot rate on the ruble/dollar cross rate: Rbl30.96/$
What is the Russian ruble/euro cross rate?
How many rubles will you obtain for your euros?
You go to a bank and are given these quotes:
You can buy a euro for 17 pesos. The bank will pay you 16 pesos for a euro. You can buy a U.S. dollar for 0.69 euros. The bank will pay you 0.61 euros for a U.S. dollar. You can buy a U.S. dollar for 14 pesos. The bank will pay you 12 pesos for a U.S. dollar.
You have $5,000.
Compute the profit that you would earn using triangular arbitrage. Enter "0", if you incur a loss. Do not round intermediate calculations. Round your answer to the nearest cent.
Chapter 5 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 5.1 - Prob. 1CCCh. 5.1 - Prob. 2CCCh. 5.2 - How can you compute the outstanding balance on a...Ch. 5.2 - What is an amortizing loan?Ch. 5.3 - What is the difference between a nominal and real...Ch. 5.3 - How do investors expectations of future short-term...Ch. 5.4 - Prob. 1CCCh. 5.4 - How do taxes affect the interest earned on an...Ch. 5.5 - What is the opportunity cost of capital?Ch. 5.5 - Why do different interest rates exist, even in a...
Ch. 5 - Your bank is offering you an account that will pay...Ch. 5 - Which do you prefer: a bank account that pays 5%...Ch. 5 - Prob. 3PCh. 5 - Prob. 4PCh. 5 - You are considering moving your money to a new...Ch. 5 - Prob. 6PCh. 5 - Prob. 7PCh. 5 - You can earn 50 in interest on a 1000 deposit for...Ch. 5 - Prob. 9PCh. 5 - Prob. 10PCh. 5 - Prob. 11PCh. 5 - Prob. 12PCh. 5 - Prob. 13PCh. 5 - Prob. 14PCh. 5 - You have just sold your house for 1,000,000 in...Ch. 5 - Prob. 16PCh. 5 - Your mortgage has 25 years left, and has an APR of...Ch. 5 - Prob. 18PCh. 5 - Prob. 19PCh. 5 - Prob. 20PCh. 5 - Prob. 21PCh. 5 - Prob. 22PCh. 5 - The mortgage on your house is five years old. It...Ch. 5 - You have credit card debt of 25,000 that has an...Ch. 5 - Prob. 25PCh. 5 - Prob. 26PCh. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Suppose the term structure of risk-free interest...Ch. 5 - Prob. 30PCh. 5 - Prob. 31PCh. 5 - Suppose the current one-year interest rate is 6%....Ch. 5 - Figure 5.4 shows that Johnson and Johnsons...Ch. 5 - Prob. 34PCh. 5 - Prob. 35PCh. 5 - Prob. 36PCh. 5 - Your best friend consults you for investment...Ch. 5 - Suppose you have outstanding debt with an 8%...Ch. 5 - In the summer of 2008, at Heathrow Airport in...Ch. 5 - Your firm is considering the purchase of a new...Ch. 5 - Prob. 41P
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