The USD/MXN spot FX is 18.91. You can borrow or deposit USD for one year at 2.36%. You can borrow or deposit MXN for one year at 8.12%. You get a 1-year FX forward quote from a bank of 20.75 USD/MXN. What is your gain/loss position in millions of USD if you borrow USD 100 mil., convert USD/MXN spot, lend MXN, and lock in your FX rate using the 1-year forward contract? Take to 4 decimals.

5. What are the 4 basic premises for Traditional Finance? Name the 4 and explain each.

6. What are the 4 basic premises for Behavioral Finance? Name the 4 and explain each.

Pelzer Printing Inc. has bonds outstanding with 9 years left to maturity. The bonds have a 9% annual coupon rate and were issued 1 year ago at their par value of $1,000. However, due to changes in interest rates, the bond's market price has fallen to $910.30. The capital gains yield last year was -8.97%.

A. What is the yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. ____%

B. For the coming year, what is the expected current yield? (Hint: Refer to footnote 7 for the definition of the current yield and to Table 7.1.) Do not round intermediate calculations. Round your answer to two decimal places.  ____%

For the coming year, what is the expected capital gains yield? (Hint: Refer to footnote 7 for the definition of the current yield and to Table 7.1.) Do not round intermediate calculations. Round your answer to two decimal places. ___ %

C. Will the actual realized yields be equal to the expected yields if interest rates change? If not, how will they differ?

1. As long as promised coupon payments are made, the current yield will change as a result of changing interest rates. However, changing rates will cause the price to change and as a result, the realized return to investors will differ from the YTM.
2. As long as promised coupon payments are made, the current yield will not change as a result of changing interest rates. However, changing rates will cause the price to change and as a result, the realized return to investors should equal the YTM.
3. As long as promised coupon payments are made, the current yield will change as a result of changing interest rates. However, changing rates will cause the price to change and as a result, the realized return to investors should equal the YTM.
4. As long as promised coupon payments are made, the current yield will change as a result of changing interest rates. However, changing rates will not cause the price to change and as a result, the realized return to investors should equal the YTM.
5. As rates change they will cause the end-of-year price to change and thus the realized capital gains yield to change. As a result, the realized return to investors will differ from the YTM.

Good Time Company is a regional chain department store. It will remain in business for one more year. The probability of a boom year is 60 percent and the probability of a recession is 40 percent. It is projected that the company will generate a total cash flow of $195 million in a boom year and $86 million in a recession. The company's required debt payment at the end of the year is $120 million. The market value of the company’s outstanding debt is $93 million. The company pays no taxes.

a. What payoff do bondholders expect to receive in the event of a recession? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.)

b. What is the promised return on the company's debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

c. What is the expected return on the company's debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

A vehicle costs $10,000 when new and has a trade-in value of $7,200 at the end of four years. Its operating expense is $4,000 per year with an additional $2,000 for tires, tune up and battery at the end of the second year. All values are given in today's dollars. What is the equivalent annual cost of owning this vehicle for four years assuming a 10% market interest rate and expected inflation of 2%?

A) A worker named Hastings lives for two periods (year 0 and year 1) and has to choose his optimal level of education. He has two choices. He can choose to go to school during year 0, in which case he has no earnings during that period; however, in year 1 he earns $220. Alternatively, he can choose not to go to school, in which case he earns $110 in both periods.

Part1. What is Hastings’ present discounted value (PDV) of lifetime earnings if he chooses not to go to school? Assume a discount rate of 10%.

Part2. What is Hastings’ present discounted value of lifetime earnings if he chooses to go to school in year 0? Assume a discount rate of 10%.

Part3. Given your answers to (1) and (2), should Hastings choose to go to school or not? Why?

Part4. Hastings’ sister Patience also lives 2 periods and if she decides not to go to school she also makes $110 in each period. However, if she decides to go to school, she can work part time and earn $50 in year 0 and then earn $220 in year 1. Patience has a discount rate of 0%. Should Patience attend school or not? Show your work

Mark wants to save money to achieve three main objectives.

1º, he would like to be able to retire within 30 years with a retirement income of $23,000 per month for 20 years, with the first payment received 30 years and 1 month from now.

2º, he would like to buy a cabin in 10 years at an estimated cost of $320,000.

3º, after he dies at the end of the 20 year retirement period, he would like to leave a $1,000,000 inheritance to his nephew. Mark can save $2,100 per month (ordinary annuity) for the next 10 years.

In addition, Mark can obtain an effective annual return of 11 percent before retirement and an effective annual return of 8 percent after retirement.

(a) What is the amount of savings that Mark needs to have at the time of retirement?

(b) How much are Mark's savings immediately after buying the cabin?

(c) How much Mark will have to save each month (ordinary annuity contributions) after the purchase of the cabin (i.e. after the year 10 and until the year 30)?

[Please show all work - thanks]

Suppose an agent has $100,000 today that he wants to save for 10 years. Compare the following two savings plans.

Bank A offers the following alternative:

For the first $50,000 the agent obtains 8% p.a. (per annum) for 10 years. For the other amount he obtains 4% p.a. for the first four years. Then he obtains 1% p.a.

Bank B offers the following alternative:

The interest in year 1 is 2%, in year 2 is 4%, in year 3 is 8%, in year 4 is 20%, then for years 5 to 10 the agent obtains 3% p.a.

For both plans, interest payments are reinvested.

(a) The agent maximizes the amount at t=10. Which plan is better? How much more can he spend at t=10, if he chooses the better one?

(b) Suppose bank B wants to match the offer of bank A. Interest rates for years 2 to 10 are as above. What interest rate for the first year must bank B offer the agent so that he gets the same amount as from bank A? [4p]

Suppose your employer offers you a choice between a $4,800 bonus and 100 shares of the​ company's stock. Whichever one you choose will be awarded today. The stock is currently trading at $62.26 per share. A. If you receive the stock bonus and you are free to trade​ it, which form of the bonus should you​ choose? What is its​ value?B. If you receive the stock bonus and you are required to hold it for at least one​ year, what can you say about the value of the stock bonus​ now? What will your decision depend​ on?

1A. If you receive the stock bonus and you are free to trade​ it, which form of the bonus should you​ choose? What is its​ value?If you are free to trade the​ stock, the value of the stock bonus today is? (Round to the nearest​ dollar.)

2B. The value of the cash bonus is ?Round to the nearest​ dollar.)

3C Which bonus should you​ choose? Stock or Cash?

2 . If you receive the stock bonus and you are required to hold it for at least one​ year, what can you say about the value of the stock bonus​ now? What will your decision depend​ on?  ​(Choose all the answers that​ apply)

A.You might decide that it is better to take the $ 4, 800 in cash than to wait for the uncertain value of the stock in one year. This would be especially true if you believed you could invest the $4,800 today in another equally risky asset that would be worth more than the stock one year from now.

B.Since you work for this company you are considered to be a stakeholder. This implies​ that, for​ you, the​ company's shares are worth more than $6,226 today.​ Therefore, you should take the stock bonus.

C.Because you could buy the stock today for $6,226 if you wanted​ to, the value of the stock bonus cannot be more than $6,226. But if you are not allowed to sell the​ company's stock for the next​ year, its value to you could be less than $6,226.

D.The​ stock's value will depend on what you expect it to be worth in one​ year, as well as how you feel about the risk involved. There is no​ clear-cut answer to which alternative is​ best, because taking the stock today and having to hold it for a year involves risk.

Compute the value of a share of common stock of Lexus Hotel Berhad whose most recent dividend was RM2.50 and is expected to grow at 3.50 percent per year for the next 5 years, 5 percent per year for the next 3 years, after which the dividend growth rate will increase to 6 percent per year indefinitely. Assume 10.00 percent required rate of return.

A local finance company quotes an interest rate of 18 percent on one-year loans. So, if you borrow $35,000, the interest for the year will be $6,300. Because you must repay a total of $41,300 in one year, the finance company requires you to pay $41,300/12, or $3,441.67, per month over the next 12 months.

a. what rate would legally have to be quoted?

b. what is the effective annual rate?