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You are a Swedish investor owning a portfolio of Swedish and American stocks. Their respective benchmarks are the OMX index and the S&P index. There have been no movements during the year (cash flows, sales, or purchase). Dividends of SKr […]

Consider Company A with a zero earnings retention ratio and a real growth rate in earnings of %. In an inflationary environment, the company can only pass inflation through its earnings at a flow-through rate of %. So if I […]

A company without default risk can issue a ten-year FRN at LIBOR. The coupon is paid and reset semiannually. It is certain that the issuer will never have default risk and will always be able to borrow at LIBOR. The […]

You are a foreign exchange dealer. You see the following quote on your Reuter’s screen: a. The spot exchange rate of the Swedish krona is equal to 5.7 per U.S. dollar. The three-month interest rates are 12% in and 8% […]

Let’s assume that you are a U.S. investor who wants to invest $10,000 in gold. The current price of gold is $400, and you expect it to go up by 10% in the very short-term. You consider buying shares of […]

The Japanese stock market has a sigma of 18%, when computed in yen. The U.S. stock market has a sigma of 17% in US$ and the US exchange rate has a sigma of 6%. The correlation between the Japanese stock […]

A German corporation finalized a sale to a Thai client on April 15. The German corporation will deliver some gardening equipment on May 31 and will be paid 345 million baht on June 30. The current spot exchange rate is […]

In 1990, the French bank, BNP, issued exchangeable bonds denominated in French francs (FF). These are bonds issued for FF 100 on April 1, 1990, with an annual coupon of FF 5, plus an exchange right. The bonds can be […]

A company without default risk can issue a five-year dollar FRN at LIBOR. The coupon is paid and reset semiannually. It is certain that the issuer will never have default risk and will always be able to borrow at LIBOR. […]

You hold a bond with a duration of 17. Its yield is 6% while the cash (one-year) rate is 4%. You expect yields to move down by 10 basis points over the year. a. Give a rough estimate of your […]

You wish to establish the theoretical futures price on a Euribor contract quoted on the London International Financial Futures Exchange (LIFFE) in London. The futures contract is for a 90-day Euribor rate at expiration of the futures contract. You look […]