Assume the following information:

1 - year U.S. interest rate = 3%

1- year German interest rate = 6%

Spot rate of euro = $1.09

1. What is the central bank likely to do and how will this affect the value of the euro?

2. Without using an exchange rate model, what is your prediction for the one year forward rate given the likely action of Germany’s central bank, all things being equal?   

3. Using the interest rate parity equation, was your prediction correct? What should the forward rate be?   

4. Based on the one year forward rate you predicted, which investor is likely to benefit from covered interest arbitrage?   

5. Compute the profit and yield to the investor who stands to benefit from covered interest arbitrage.   

1)Gamma reported $600,000 net income for the year with 100,000 common shares outstanding all year. It also had 50,000 shares of $100 par, 8% convertible preferred shares outstanding all year. Each preferred share is convertible into 10 shares of common stock. Determine basic and diluted EPS.

2)Alpha reported net income of $500,000 for the year. It has 200,000 shares of common stock outstanding all year. Two years ago the company granted 20,000 stock options that allow employees to purchase shares for $15 each. The company stock has averaged $20 in the market during the year. Compute the basic and diluted EPS.

Project B has the following Cash Flows: Cost = $800,000; Year 1 = $329,000; Year 2 = $260,750; Year 3 = $192,500; Year 4 = $147,000; Year 5 = $101,500. Calculate the Internal Rate of Return for Project B.

On July 1, Year 1, Livingston Corporation, a wholesaler of manufacturing equipment, issued $46,000,000 of 20-year, 10% bonds at a market (effective) interest rate of 11%, receiving cash of $42,309,236. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.

5. Compute the price of $42,309,236 received for the bonds by using the present value tables in Exhibit 5 and Exhibit 7. (Round to the nearest dollar.) Your total may vary slightly from the price given due to rounding differences.

Rodgers Corporation produces and sells football equipment. On July 1, Year 1, Rodgers issued $65,000,000 of 10-year, 12% bonds at a market (effective) interest rate of 10%, receiving cash of $73,100,469. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.

5. Compute the price of $73,100,469 received for the bonds by using the present value tables Exhibit 5 and Exhibit 7.

Walmart has an interest in monitoring the average back-to-school spending for grade-school students year to year. Every year the back-to-school spending data is published by the National Retail Federation. The following table shows the average back-to-school spending of households randomly sampled in 2016 and 2017 along with the population standard deviations and sample sizes for each sample. 2016 2017 Sample mean $606.40 $655.27 Sample size 35 38 Population standard deviation $160 $173 a. State the correct null and alternative hypotheses. b. Perform a hypothesis test using α = 0.10 to determine if the average household back-to-school spending in 2016 was different than it was in 2017. c. Use Confidence Interval to test this hypotheses

Cougar Athletics is soliciting bids on a 3-year contract to produce 3,000 t-shirts per year to be given away at athletic events. You have decided to bid on the contract. It will cost you $3 per shirt in variable costs (buying plain t-shirts and paying an employee to imprint them) and $5,000 per year in fixed costs. A t-shirt printing machine will cost $7,500. The machine will be depreciated to zero over its 3-year life and it will not have any salvage value. There are no net working capital implications for the project. If your tax rate is 20% and your required return on this project is 10%, how much would you bid for the contract? State your answer in the total price, not the per-unit price. Now suppose you are offered the deal in question 1 for a price of $6 per shirt. What is the project’s NPV?

This is answer but I do not know how to get this NPV.

Sales 18000-VC 9000-FC 5000-D 2500=EBIT 1500 -Taxes 300=NI 1200 OCF 3700 NPV $1,701.35

Milea Inc. experienced the following events in Year 1, its first year of operations:

1. Received $16,500 cash from the issue of common stock.
2. Performed services on account for $45,000.
3. Paid the utility expense of $1,250.
4. Collected $32,410 of the accounts receivable.
5. Recorded $7,750 of accrued salaries at the end of the year.
6. Paid a $1,350 cash dividend to the stockholders.

Prepare the statement of changes in stockholders’ equity.

Prepare the balance sheet.
   Prepare the balance sheet.
  

Suppose a 10-year zero-coupon bond (zero) is trading spot at 5% and a 20-year zero is trading spot at 7%. In lectures (L4.9) we proved that the 10 year forward rate for a 10 year zero must be 0.0904 (annual compounding). All are risk free.

If the rates are not 0.0904 for the forward you can make a free profit by using arbitrage. Suppose you have $0 dollars today but are allowed to sell and buy $100,000 worth of zero coupon bonds (and commit to the forward 10 year zero coupon bond using ​any​ cash you have ​- or need to reborrow​ - after 10 years from your initial trades).
(a) What trades do you execute if the forward rate is 8% - report your profit. (b) What trades do you execute if the forward rate is 10% - report your profit. (c) Comment on why the forward rate must be 9.04% in light of your results.