Mt480 Corporate Finance Unit 9 Project
Student
MT480-01: Corporate Finance
Unit Nine: Assignment
Date
Assignment:
Complete the following exercises and problems from the textbook. Some problems ask multiple questions; be sure to answer every part of the exercise or problem unless otherwise noted * Chapter 28: Practice Questions 2, 10, 11, and 13 * Chapter 34: Practice Questions 2, 3, and 7
Chapter 28:
2. Table 28.1 shows the 90-day forward rate on the South African rand.
a. Is the dollar at a forward discount or premium on the rand?
The dollar is selling at a forward premium on the rand.
b. What is the annual percentage discount or premium?
4 x [(6.4662/6.5917) – 1] = -0.0762 = -7.62%
c. If you have no other information about the two currencies, what is your best guess about the spot rate on the rand three months hence?
Using the Expectations Theory:
$1 = 6.5917 rand
d. Suppose that you expect to receive 100,000 rand in three months. How many dollars is this likely to be worth?
100,000 rand = $(100,000 / 6.5917) = $15,170.59
10. In March 2004, an American investor buys 1,000 shares in a Mexican company at a price of 500 pesos each. The share does not pay any dividend. A year later she sells the shares for 550 pesos each. The exchange rates when she buys the stock are shown in Table 28.1.
Suppose that the exchange rate at the time of sale is peso $12.0/$.
a. How many dollars does she invest?
Pesos invested = 1,000 × 500 pesos = 500,000 pesos
Dollars invested = $500,000/10.9815 = $45,531.12
b. What is her total return in pesos? In dollars?
Total return in pesos = [(550 - 500) x (1000)] / (500 ×1000) = 0.10 = 10.0%
Dollars received = (550 × 1000)/12.0 = $45,833.33
c. Do you think that she has made an exchange rate profit or loss? Explain.
Although there was a loss on the exchange rate, there has been a return on the investment of 10%.
11. Table 28.4 shows the annual interest rate (annually compounded) and
MT480-01: Corporate Finance
Unit Nine: Assignment
Date
Assignment:
Complete the following exercises and problems from the textbook. Some problems ask multiple questions; be sure to answer every part of the exercise or problem unless otherwise noted * Chapter 28: Practice Questions 2, 10, 11, and 13 * Chapter 34: Practice Questions 2, 3, and 7
Chapter 28:
2. Table 28.1 shows the 90-day forward rate on the South African rand.
a. Is the dollar at a forward discount or premium on the rand?
The dollar is selling at a forward premium on the rand.
b. What is the annual percentage discount or premium?
4 x [(6.4662/6.5917) – 1] = -0.0762 = -7.62%
c. If you have no other information about the two currencies, what is your best guess about the spot rate on the rand three months hence?
Using the Expectations Theory:
$1 = 6.5917 rand
d. Suppose that you expect to receive 100,000 rand in three months. How many dollars is this likely to be worth?
100,000 rand = $(100,000 / 6.5917) = $15,170.59
10. In March 2004, an American investor buys 1,000 shares in a Mexican company at a price of 500 pesos each. The share does not pay any dividend. A year later she sells the shares for 550 pesos each. The exchange rates when she buys the stock are shown in Table 28.1.
Suppose that the exchange rate at the time of sale is peso $12.0/$.
a. How many dollars does she invest?
Pesos invested = 1,000 × 500 pesos = 500,000 pesos
Dollars invested = $500,000/10.9815 = $45,531.12
b. What is her total return in pesos? In dollars?
Total return in pesos = [(550 - 500) x (1000)] / (500 ×1000) = 0.10 = 10.0%
Dollars received = (550 × 1000)/12.0 = $45,833.33
c. Do you think that she has made an exchange rate profit or loss? Explain.
Although there was a loss on the exchange rate, there has been a return on the investment of 10%.
11. Table 28.4 shows the annual interest rate (annually compounded) and
References: Brealey, R. A., Myers, S. C., & Allen, F. (2006). Principles of corporate finance (8th ed.). New York, NY: McGraw-Hill/Irwin