1. Compute the domestic country beta of Telmex as well as its world beta. What do these betas measure?
2. Suppose the Mexican stock market is segmented from the rest of the world. Using the CAPM paradigm, estimate the equity cost of capital of Telme..
A "three against nine" FRA has an agreement rate of 4.75 percent. You believe six-month LIBOR in three months will be 5.125 percent. You decide to take a speculative position in a FRA with a $1,000,000 notional value. There are
183 days in the FRA p..
A 20-year bond has a coupon rate of 8 percent, and another bond of the same maturity has a coupon rate of 15 percent. If the bonds are alike in all other respects, which will have the greater relative market price decline if interest rates increase s..
A bank is quoting the following exchange rates against the dollar for the Swiss franc and the Australian dollar:
SFr/$ = 1.5960-70
A$/$ = 1.7225-35
An Australian firm asks the bank for an A$/SFr quote. What cross-rate would the bank quote?
A bank sells a "three against six" $3,000,000 FRA for a three-month period beginning three months from today and ending six months from today. The purpose of the FRA is to cover the interest rate risk caused by the maturity mismatch from having made ..
A college bookstore is attempting to determine the optimal order quantity for a popular book on psychology. The store sells 5,000 copies of this book a year at a retail price of $12.50, and the cost to the store is 20 percent less, which represents t..
A company based in the United Kingdom has an Italian subsidiary. The subsidiary generates €25,000,000 a year, received in equivalent semiannual installments of €12,500,000. The British company wishes to convert the euro cash flows to pounds twice a..
A company has total annual sales (all credit) of $400,000 and a gross profit margin of 20 percent. Its current assets are $80,000; current liabilities, $60,000; inventories, $30,000; and cash, $10,000.
a. How much average inventory should be carried ..
A corporation enters into a five-year interest rate swap with a swap bank in which it agrees to pay the swap bank a fixed rate of 9.75 percent annually on a notional amount of €15,000,000 and receive LIBOR. As of the second reset date, determine the..
A firm desires to maintain a certain portion of its marketable securities portfolio to meet unforeseen cash needs. Would commercial paper or Treasury bills be better suited as shortterm investments in this ready cash segment? Why?..
A firm that sells 5,000 blivets per month is trying to determine how many blivets to keep in inventory. The financial manager has determined that it costs $200 to place an order.
The cost of holding inventory is 4 cents per month per average blivet i..
A five-year, 4 percent Euro yen bond sells at par. A comparable risk five-year, 5.5 percent yen/dollar dual-currency bond pays $833.44 at maturity per ¥100,000 of face value. It sells for ¥110,000. What is the implied ¥/$ exchange rate at maturity?
A foreign exchange with a U.S. bank took a short position of £5,000,000 when the $/£ exchange rate was 1.55. Subsequently, the exchange rate has changed to 1.61.
Is this movement in the exchange rate good from the point of view of the position taken..