. Consider the following data:

Portfolios a, b, and c are well diversified. If there is an arbitrage opportunity, how will it be done?

A. Buy stocks a and short stocks b and c,

B. buy stocks a and b and short c,

C. buy stock b and short a and c.

D.  There is no arbitrage opportunity.

Please can somebody answer this? I think there is no arbitrage opportunity since 1 of the betas has to be equal to 0. Please correct me if I'm wrong

Raymond Mining Corporation has 8.3 million shares of common stock outstanding, 270,000 shares of 5% $100 par value preferred stock outstanding, and 139,000 7.50% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $31 per share and has a beta of 1.15, the preferred stock currently sells for $93 per share, and the bonds have 15 years to maturity and sell for 112% of par. The market risk premium is 7.1%, T-bills are yielding 4%, and Raymond Mining’s tax is 30%.

a. What is the firm’s market value capital structure? (Enter your answers in whole dollars.)

b. If Raymond Mining is evaluating a new investment project that has the same risk as the firm’s typical project, what rate should the firm use to discount the project’s cash flows? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 3 decimal places.)

1. An investor buys 100 shares of Abbott Labs at $85 and buys one $75 put on Abbott for $2.

   1. If Abbott goes to zero, what is the profit or loss on these positions?

   2. If Abbott goes to $100 on the option expiration date, what is the investor’s dollar gain or loss on these positions?

   3. What option strategy would the investor take if he did not want to pay for the put? What are the disadvantages of this strategy?

Given four of the bond variables, determine the fifth bond variable. All Annual Coupons

(A) Given Number of Periods to Maturity is 10, Face Value is $1,000, YTM is 3.2%, and Coupon Payment is $40, determine the Bond Price.

(B). Given Number of Periods to Maturity is 8, Face Value is $1,000, YTM is 4.5%, and the Bond Price is $880.00, determine the Coupon Payment.

(C). Given Number of Periods to Maturity is 6, Face Value is $1,000, Coupon Payment is $30, and the Bond Price is $865.00, determine YTM.

(D). Given Number of Periods to Maturity is 8, YTM is 3.8%, Coupon Payment is $45, and the Bond Price is $872.00, determine Face Value.

(E). Given Face Value is $1,000, YTM 4.3%, Coupon Payment is $37, and the Bond Price is $887.00, determine the Number of Periods to Maturity.

Your Company is considering a new project that will require $620,000 of new equipment at the start of the project. The equipment will have a depreciable life of 10 years and will be depreciated to a book value of $100,000 using straight-line depreciation. The cost of capital is 11%, and the firm's tax rate is 21%. Estimate the present value of the tax benefits from depreciation.

• $10,920

• $64,310

• $41,080

• $52,000

The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. You enter into a long position on €1,000. At maturity, the spot exchange rate is $1.40/€. How much have you made or lost? Group of answer choices +$100 -$100 -$50 +$50

Your division is considering two investment projects, each of which requires an up-front expenditure of $35 million. You estimate that the cost of capital is 10% and the the investment will produce the following after-tax- cash flows (in millions of dollars):

a.What is the payback Period for each of the projects (assume cash flows occur evenly during the year, 1/365th each day)?

b. Computer the net present value (NPV) for each project. c. if the two projects are independent, which projects should the firm undertake?

d. If the two projects are mutually exclusive, which project or projects the firm undertake?

. Your business needs approximately $1,000,000 to purchase a piece of equipment to use in the production facility to produce a new product. Your task is to analyze several possible financing options. The options being considered to raise the funds for the equipment are as follows: • Funding the project with a loan from Jayhawk Bank. Jayhawk Bank currently charges a fixed rate of 8% annual interest compounded quarterly. Payments are scheduled quarterly over five years. • Funding the project by cashing in a money market account that was set up two years ago as an emergency fund. The fund started with an initial deposit of $900,000 and paid 3.5% annual interest compounded monthly. • Funding the project from an initial investment and current profits. This option requires the project to be delayed for a year and a half. A portion of the company’s expected profits ($50,000 per month each month) would be invested during the delay, and an initial cash outlay would need to be determined. A money market account will be used to hold Project 2 IST 310: Spreadsheet and Database Applications Page 5 these funds. The current money market rates pay 4% annual interest compounded monthly. • Funding the project with a loan from Kansas Bank. The loan will be paid back over the next four years, with equal semiannual payments (compounded semiannually) of $150,000. • Funding the project with a loan from Rock Chalk Bank. The loan would have a fixed interest rate of 6.5% per year compounded quarterly, and fixed quarterly payments of $95,000. Use various financial functions to determine the missing piece of information for each of the five options (PMT for cell E3, FV for cell G4, PV for cell F5, RATE for cell C6, and NPER for cell D7). When using Excel financial functions, pay close attention to the compounding period being used. The financial functions apply the interest rate per period and the payment per period to the principal over a specified number of periods. It does not matter if the compounding period is months, days, quarters, years, or some other specified period. A financial function applies the appropriate rate and payments for the specified number of times. If the rate and number of period arguments and the payment are not all consistent with the compounding period duration, the wrong values will be calculated. The payment on a loan of 8% per year for five years compounded once per year is different from the payment on that same loan amount compounded quarterly with a rate of 2% per quarter (8% divided by 4) over 20 quarters (5 years multiplied by 4 quarters). For the loan being offered by Jayhawk Bank, the interest rate per year is 8% over a period of five years. Because the compounding period is quarterly, a rate of 2% per quarter is applied over 20 separate periods. The value that you are calculating with the PMT function is the payment per quarter. Your completed analysis should look like this:

Boeing imported a Rolls-Royce jet engine for £10 million in one year. The market conditions are given as follows: i_$=4.0%, i_£ = 3.0%, S₀ = $1.45/£, F₁ = $1.46/£.

1. Set up a money market hedge
2. Show the amount of dollar gains or losses the money market hedge incurs compared to a forward hedge. Be sure to use the parity conditions to explain why the money market hedge gains or losses.

Please keep at least two decimal points. If not, one point will be taken off.

Interest Rate Parity formula: F($/£) = S($/£)*[(1+i_$)/(1+i_£)

Kurz Manufacturing is currently an​ all-equity firm with 30 million shares outstanding and a stock price of $ 14.00 per share. Although investors currently expect Kurz to remain an​ all-equity firm, Kurz plans to announce that it will borrow $ 67 million and use the funds to repurchase shares. Kurz will pay interest only on this​ debt, and it has no further plans to increase or decrease the amount of debt. Kurz is subject to a 30 % corporate tax rate.

a.) What is the market value of​ Kurz's existing assets before the​ announcement?

b.) What is the market value of​ Kurz's assets​ (including any tax​ shields) just after the debt is​ issued, but before the shares are​ repurchased?

c.) What is​ Kurz's share price just before the share​ repurchase? How many shares will Kurz​ repurchase?

d.) What are​ Kurz's market value balance sheet and share price after the share​ repurchase?

NPVs, IRRs, and MIRRs for Independent Projects

Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year's capital budget. The projects are independent. The cash outlay for the truck is $19,000 and that for the pulley system is $20,000. The firm's cost of capital is 12%. After-tax cash flows, including depreciation, are as follows:

1. Calculate the IRR for each project. Round your answers to two decimal places.

   Truck:________%
   
   Pulley:________%

2. Calculate the NPV for each project. Round your answers to the nearest dollar, if necessary. Enter each answer as a whole number. For example, do not enter 1,000,000 as 1 million.

   Truck:________$   

   Pulley:________$  

3. Calculate the MIRR for each project. Round your answers to two decimal places.

   Truck:_______%
   
   Pulley:_______%