Question

In: Finance

a.True or false. The Federal Insurance Office of the U.S. Treasury offers insurance companies the opportunity...

a.True or false. The Federal Insurance Office of the U.S. Treasury offers insurance companies the opportunity of an optional federal charter, which allows them to be regulated at the federal level rather than by multiple states.

b.A stock with a 5% dividend yield is priced at $100. If the projected growth rate of dividends is 3% (forever), what is the company’s cost of equity according to the dividend discount model?

c. Suppose the exchange rate with the United Kingdom is 25 dollars per UK pound, and that the US one year interest rate is 2% while the UK one year interest rate is 0.5%. What is the expected exchange rate in one year if interest parity holds?

Expert Solution

a.

True

The optional federal charter allows the insurance company to choose between the state regulatory system or the federal regulatory system.

b.

Formulas used to solve the question are

Cost of equity is calculated from Dividend Discount Model

c.

Spot Rate USD/GBP = 25

US interest rate (domestic rate) = 2%

UK interest rate (foreign rate) = 0.5%

jeff jeffy answered 3 months ago

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