A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 7%. The probability distribution of the risky funds is as follows:

The correlation between the fund returns is 0.10.

Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio. (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)

a. Portfolio invested in the stock

b. Portfolio invested in the bond

c. Expected Return

d. Standard Deviation

NPVs and IRRs for Mutually Exclusive Projects

Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Because both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments.) The electric-powered truck will cost more, but it will be less expensive to operate; it will cost $22,000, whereas the gas-powered truck will cost $17,500. The cost of capital that applies to both investments is 12%. The life for both types of truck is estimated to be 6 years, during which time the net cash flows for the electric-powered truck will be $6,290 per year and those for the gas-powered truck will be $5,000 per year. Annual net cash flows include depreciation expenses.

1. Calculate the NPV for each type of truck. Do not round intermediate calculations. Round your answers to the nearest dollar.

   Electric-powered forklift truck: $ ???

   Gas-powered forklift truck: $ ???

2. Calculate the IRR for each type of truck. Do not round intermediate calculations. Round your answers to two decimal places.

   Electric-powered forklift truck: ??? %

   Gas-powered forklift truck: ???  %

   Which type of the truck should the firm purchase?
   The firm should purchase [(A)Electric powered, (B) Gas powered] forklift truck.

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Question: A)      Assuming triangular arbitrage is not possible and exchange rates...

a)      Assuming triangular arbitrage is not possible and exchange rates are priced efficiently, use the following quotes to determine the percentage change in the NZD against the JPY.

b)     You have the following quotes from three different banks:

If you can buy or sell at the given quotes, how much profit can you make using AUD $1 000 000. Clearly show each of your trades and give your profit in AUD.        

6. (Merger and acquisition):Energy-USA plans to acquire Energy-Brazil. It offers X millionsharesof Energy-USA for all of Energy-Brazil’s shares. The exchange rate is R$4.07/$ around the acquisition. Also, there are no expected synergies from the transaction.

(a) If Energy-USA pays no premium to acquire Energy-Brazil, what will be the EPSof Energy-USA after the​ merger?

(b) What will be the P/E ratio (4 decimal places)of Energy-USA after the merger​ (if no​ premium is paid)?

(c) In part (b), find the value of Xand the exchange ratio (4 decimal places).

(d) (new part) Suppose Energy-USA offers an exchange ratio such​ that, at current​ pre-announcement stock prices ($) for both​ firms, the offer represents a 20% premium to acquire Energy-Brazil. What will be the EPSof Energy-USA after the​ merger?

After extensive medical and marketing research, Pill, Inc., believes it can penetrate the pain reliever market. It is considering two alternative products. The first is a medication for headache pain. The second is a pill for headache and arthritis pain. Both products would be introduced at a price of $8.45 per package in real terms. The headache-only medication is projected to sell 3 million packages a year, whereas the headache and arthritis remedy would sell 4.6 million packages a year. Cash costs of production in the first year are expected to be $4.20 per package in real terms for the headache-only brand. Production costs are expected to be $4.75 in real terms for the headache and arthritis pill. All prices and costs are expected to rise at the general inflation rate of 3 percent.

Either product requires further investment. The headache-only pill could be produced using equipment costing $20 million. That equipment would last three years and have no resale value. The machinery required to produce the broader remedy would cost $29 million and last three years. The firm expects that equipment to have a $1,000,000 resale value (in real terms) at the end of Year 3. The firm uses straight-line depreciation and has a tax rate of 22 percent. The appropriate real discount rate is 7 percent.

You want to create an endowment to fund a football scholarship, which pays $20,000 per year, forever, how much money must be set aside today if the rate of interest is 4.7%?

Bond

valuationlong dash—Semiannual

interest   Calculate the value of each of the bonds shown in the following​ table, all of which pay interest semiannually.  ​(Click on the icon located on the​ top-right corner of the data table below in order to copy its contents into a​ spreadsheet.)

The value of bond A is

​$______

​ (Round to the nearest​ cent.)

The management team of Accent Group Limited have received a proposal from the manager of Hype DC. This proposal concerns a major upgrade to Hype DC's stores to improve the customer experience. Key details relating to this proposal include:

• The initial cost will be $22 million. This cost will be depreciated using the straight line method over the 5 year life of the upgrade.
• During year 1, the firm will increase marketing costs by $2.0 million to promote the store upgrades.
• Over the five year life of the project, it is expected that the upgrade will increase the firm's sales by $18 million per year. On average, cost of sales is 45% of revenue.
• The firm will need to higher additional staff over the life of the project to help to deal with the increased sale volume. In year 1, the firm's staffing costs will increase by $1.0 million. These costs will increase by 3.5% p.a.
• The upgrade is expected to increase the firm's energy costs by $500,000 in year 1. This increase will be ongoing across the life of the project and will increase by 6% p.a.
• Upgraded stores will include an old shoe recycling drop off zone. This recylcing program will cost $75,000 in year 1. These costs will increase by 2% p.a.
• At the end of year 3, the firm will spend $1.5 million on a minor refurbishment to the stores.

The firm’s tax rate is 30%. The firm requires a 16% required rate of return on all potential investments.

1. Discuss how sensitive your recommendations are to changes in assumptions in regards to the financial impact of the new capital investment. In your discussion, include examples which illustrate how changes to at least two assumptions impact the financial analysis .

Company A makes annual USD payments of 6% on a notional of USD 2,265,000. Company A receives annual GBP payments of 7% on a notional of GBP 1,500,000. Assume that the USD and GBP interest rates are rUSD = 3% and rGBP = 6%. The swap currently has 4 years until it matures. The next cash flow exchange will occur one year from today. If the current USD/GBP spot rate XNUSD/GBP = 1.39, what is the value of this currency swap for company A?

what is the difference between bank loans and commercial paper? are there specific situations when companies should resort to using commercial paper?

Consider an investor who contacts his/her broker on June 5^th to enter into short position on 3 December soybean futures contract.

Each contract size is 50lbs. Initial margin requirement is $5000 per contract and maintenance margin requirement is $3750 per contract. Suppose that current futures price is $1250 per pound.

Using the daily settlement process, please answer

#1. Are there any margin calls? If so, when and by how much?

#2. How much is the total cumulative loss/gain for this account?

#3. What is the appropriate account balance at the end of June 6th, which is the highlighted part in the table above?

You win the lottery! Your choices are

• Take $25 million today.
• Take $1 million today and $1 million every year for the next 49 years (a total of $50 million)

a) If the interest rate is 0.1% compounded annually, which would you prefer?

b) If the interest rate is 4% compounded annually, which would you prefer?

c) At what annual interest rate would you be indifferent between the two?

please use excel and GOAL SEEK FOR 2C

What technological innovations may change the existing structures of the banking industry? What technological innovations may cause disintermediation and disruption of the banking industry?

You purchased a house five years ago and borrowed $400,000 . The loan you used has 300 more monthly payments of $1,686 each, starting next month, to pay off the loan. You can take out a new loan for $355,625 at 2.00% APR compounded monthly , with 300 more payments, starting next month to pay off this new loan. If your investments earn 2.75% APR compounded monthly , how much will you save in present value terms by using the new loan to pay-off the original loan?

You would like to vacation in Hawaii for one week each year.
You can buy a time share for a vacation home in Hawaii for $19,000 today and a maintenance fee of $660 per year starting next year. You expect to sell the time share in 10 years for $19,000 .
Alternatively you can just pay for the week vacation each year (starting next year). Each year will cost you $1,500 .

If your investments earn 5% per year (compounded annually) which alternative is cheaper and by how much in present value terms?