Assume that you use Purchasing Power Parity (PPP) to forecast exchange rates. You expect that inflation in France the next year will be -1.0%, and inflation in the US will be +2%. Assume that you are considering the purchase of five one-year euro call options from PHLX with a strike price of $1.08/€. The premium is 0.5 cents per €. Today the spot rate of the euro is $1.06/€. The one-year forward rate is $1.07/€.

Based on your PPP analysis, what will be your expected spot exchange of $/€ in one year?

Graph the call option cash flow schedule at maturity. Mark clearly where will be option’s break-even point.

Determine your expected profit (or loss) if the euro appreciates to your expected future spot rate.

Determine your expected profit (or loss) if the euro appreciates to the forward rate.

(Note: One PHLX euro option contract covers €10,000. For simplicity, ignore the time value of money)

1.Write the Bernoulli equation and state all the assumptions used in its derivation.

2.Write the vector form of the conservation of momentum equation for a control volume that is moving with a constant velocity.

3.) Water is flowing in a fire hose with a velocity of 1.0 m/s and a pressure of 200000 Pa. Use the Bernoulli equation to calculate the velocity of the water exiting the nozzle. Note: Derive the expression before plugging in numbers and clearly state all your assumptions.

4.Through a refinery, fuel ethanol is flowing in a pipe at a velocity of 1 m/s and a pressure of 101300 Pa. The refinery needs the ethanol to be at a pressure of 2 atm (202600 Pa) on a lower level. How far must the pipe drop in height in order to achieve this pressure? Assume the velocity does not change. (Hint: Use the Bernoulli equation. The density of ethanol is 789 kg/m3 ). Derive the expression before plugging in numbers.

A CI is desired for the true average stray-load loss μ (watts) for a certain type of induction motor when the line current is held at 10 amps for a speed of 1500 rpm. Assume that stray-load loss is normally distributed with σ = 3.3. (Round your answers to two decimal places.)

(a) Compute a 95% CI for μ when n = 25 and x = 54.7.

,

watts

(b) Compute a 95% CI for μ when n = 100 and x = 54.7.

,

watts

(c) Compute a 99% CI for μ when n = 100 and x = 54.7.

,

watts

(d) Compute an 82% CI for μ when n = 100 and x = 54.7.

,

watts

(e) How large must n be if the width of the 99% interval for μ is to be 1.0? (Round your answer up to the nearest whole number.)
n =

You may need to use the appropriate table in the Appendix of Tables to answer this question.

A CI is desired for the true average stray-load loss μ (watts) for a certain type of induction motor when the line current is held at 10 amps for a speed of 1500 rpm. Assume that stray-load loss is normally distributed with σ = 3.3. (Round your answers to two decimal places.)

(a) Compute a 95% CI for μ when n = 25 and x = 54.7.

(      ,        )   watts

(b) Compute a 95% CI for μ when n = 100 and x = 54.7.

(        ,     ) watts
(c) Compute a 99% CI for μ when n = 100 and x = 54.7

(          ,         ) watts
(d) Compute an 82% CI for μ when n = 100 and x = 54.7.

(          ,          ) watts
(e) How large must n be if the width of the 99% interval for μ is to be 1.0? (Round your answer up to the nearest whole number.)
n =

You may need to use the appropriate table in the Appendix of Tables to answer this question.

Below is information on several bonds of different maturities and coupon rates that trade in the same market. If the bonds pay a coupon, you may assume that the coupon is paid semi-annually, with the next coupon payment six months away. All bonds have a face value of $1,000.

For Bonds 1-4, assuming that they are fairly valued, calculate the spot interest rates for maturities of 0.5, 1.0, 1.5 and 2.0 years.

What is the Yield to Maturity (YTM) for each of the four (4) bonds?

Bond 5 trades in this market place. It has a maturity of 1 year, a coupon rate of 3.5% per year (paid semi-annually) and a face value of $1,000. What is the value of the bond?

Assume that stock market returns have the market index as a common factor, and that all stocks in the economy have a beta of 1.9 on the market index. Firm-specific returns all have a standard deviation of 40%.

Suppose that an analyst studies 20 stocks and finds that one-half of them have an alpha of +2.8%, and the other half have an alpha of −2.8%. Suppose the analyst invests $1.0 million in an equally weighted portfolio of the positive alpha stocks, and shorts $1 million of an equally weighted portfolio of the negative alpha stocks.

a. What is the expected profit (in dollars) and standard deviation of the analyst’s profit? (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

b. How does your answer change if the analyst examines 60 stocks instead of 20 stocks? 120 stocks? (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

Brooks Bright (BB) has applied for a loan of $800,000 to purchase a residential house from Distonic Bank. BB has the option of either paying the loan on a flat fixed rated interest or floating rate based on the declining balance of the loan. On the flat fixed interest rate pricing, Distonic Bank will charge a rate of 5 % per annum. The pricing on the floating rate based on the declining balance will be Base Lending Rate (BLR) plus 1.0 % per annum. The Base Lending Rate is currently at 4.0 % per annum. The loan is to be repaid in 20 years. Based on the information provided above, answer the following questions:

(a) Calculate the monthly loan installments if BB opts for the flat fixed rate loan.

(b) Calculate the monthly loan installments if BB opts for the floating rate loan.

(c) Calculate the difference in the total loan amount repaid between the two interest structures (a) and (b). Which of the pricing structure would be beneficial to BB?

Read the Chapter 15 Mini Case on page 651-652 in Financial Management: Theory and Practice. Using complete sentences and academic vocabulary, please answer questions a and b.

If the company were to recapitalize, then the debt would be issued and the funds received would be used to repurchase stock. Pizza Palace is in the 40% state-plus-federal corporate tax bracket, its beta is 1.0, the risk-free rate is 6%, and the market risk premium is 6%.
a. Using the free cash flow valuation model, show the only avenues by which capital
structure can affect value.

b. (1) What is business risk? What factors influence a firm’s business risk?

(2) What is operating leverage, and how does it affect a firm’s business risk? Show the operating break-even point if a company has fixed costs of $200, a sales price of
$15, and variable costs of $10.

Please show formulas

1. Assume Honda estimates the income elasticity of demand for its Accord sedan to be 1.2. If as a result of economic growth in the economy incomes rise by 5%, Honda can expect Accord sales

A. To increase by 12%

B. To increase by 6%.

C. To decline by 5%.

D. To increase by 10%

2. Suppose the price elasticity of the supply of beach front property is 0. An increase in demand for beach front property will

A. Increase the quantity supplied of beach front property.

B. Increase the price of beach front property.

C. Increase the consumer surplus for beach front property.

D. All the above.

3. The following demand schedule is for the quantity of peanut butter sold at various prices. Find the average (ARC) elasticity of demand if price changes from $1 to $3 (in absolute value).

       P Q

    $1.00 50

    $3.00 30

    $5.00 10

    $7.00 1

A. 2.0 B. 1.5 C. 1.25 D. 1.0 E. 0.5   

Assume that stock market returns have the market index as a common factor, and that all stocks in the economy have a beta of 1.8 on the market index. Firm-specific returns all have a standard deviation of 40%.

Suppose that an analyst studies 20 stocks and finds that one-half of them have an alpha of +2.8%, and the other half have an alpha of −2.8%. Suppose the analyst invests $1.0 million in an equally weighted portfolio of the positive alpha stocks, and shorts $1 million of an equally weighted portfolio of the negative alpha stocks.

a. What is the expected profit (in dollars) and standard deviation of the analyst’s profit? (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

b.How does your answer change if the analyst examines 60 stocks instead of 20 stocks? 120 stocks? (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)