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### International Finance Problemset1

Course: FIN 431, Fall 2009
School: CSU LA
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Word Count: 4400

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Finance International Problems: 1 Exchange Rates: 1. Indicate whether the following quotations are in American or European Terms, indicate the currency the bank is offering buy/sell, and indicate how much the bank will make for each dollar (\$) simultaneously bought and sold: Bid Offer a. 10P/\$ 11P/\$ b. 110/\$ 105/\$ c. .65\$/CD .68\$/CD d. .44\$/SD .40\$/SD e. 8000Rp/\$ 8200Rp/\$ Answers: a. European Terms, \$ b. European...

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CSU LA - FIN - 431
International Finance Problemset 3 Hedging &amp; Transaction Exposure 1. Suppose that you will be paid 6,000,000 Pakistani Rupees (PR) in one year, but are concerned that Pakistan and Afghanistan will go to war. The revenues are certain. The current spot
CSU LA - FIN - 533
A Forward Rate Based Approach to Teaching the Fundamental Futures Hedge: Conveying the Connection Between the Futures Price and the Forward RateJames F. RefaloCalifornia State University, Los AngelesOne of the challenges in teaching the basic fut
CSU LA - FIN - 533
CSU LA - FIN - 533
CSU LA - FIN - 533
Improv Class: As mentioned in class, I recommend the following improv workshop for anyone wishing to improve their presentation skills. It meets once a week for twelve weeks. It will help you learn to think on your feet, and make you more comfortable
CSU LA - FIN - 533
International Finance Homework/Exam Review Essay Questions: Answering these questions fully, using both the notes and book as a resource, will go a long way to develop the knowledge expected of you in this course, and prepare you for the exams. Feel
CSU LA - FIN - 533
International Finance Presentation The presentation is a report on the business climate of a selected country or region (2-3 countries with common characteristics) and will analyze Economic, financial, legal, and political climate of a country Econo
CSU LA - FIN - 533
International Finance Problems: 2 Options: 1. Draw (separately) the Payoff and Profit/Loss diagrams for a Call and Put options on the Australian dollar with a strike of \$.75, assuming premia of \$.02 and \$.025 respectively. Indicate the break-even poi
CSU LA - FIN - 533
International Finance Problemset 3 Hedging &amp; Transaction Exposure 1. Suppose that you will be paid 6,000,000 Pakistani Rupees (PR) in one year, but are concerned that Pakistan and Afghanistan will go to war. The revenues are certain. The current spot
CSU LA - FIN - 533
International Finance Lecture 1 Course Overview Objectives: Understand Exchange Rate Regimes o Why we Trade, What an MNC is, and Trends in Economic Globalization o Benefits/Drawbacks to Monetary Union o Different Types of Exchange Rate Regimes o Dra
CSU LA - FIN - 533
International Finance Lecture 3 International Parity Conditions-PPP: 1. Law of One Price or &quot;PPP&quot; a. Assets must have the same price after currency translation b. Arbitrage Opportunities exist if this does not hold c. Assumes low (or no) transaction
CSU LA - FIN - 533
International Finance Lecture 4Futures and Options Markets: Statistical Data Futures and Options provide virtually unlimited trading volume potential o Contracts are written by investors, not issued like shares of stock or bonds o The value of the
CSU LA - FIN - 331
CSU LA - FIN - 331
PV Problem Set 1. Assume a .05 (5%) time value of money. We have a debt to pay and are given a choice of paying \$1,000 now or some amount X five years from now. What is the maximum amount that X can be for us to be willing to defer payment for 5 year
CSU LA - FIN - 331
1. Suppose that a share of IBM stock costs \$100 today, the 1-year forward is \$110 per share, and the 1-year risk free rate is 9% (assume that you can both borrow and lend at the risk-free rate). Is there a way to earn arbitrage (that is risk-free pro
CSU LA - FIN - 331
Government Bailout Plan Overview: http:/www.kfwb.com/-700B-Rescue-Plan-Finalized-House-to-Vote-Monday/3043388 Actual Legislation: http:/i.cdn.turner.com/cnn/2008/images/09/28/ayo08c04_xml.pdf Government Summary: http:/www.house.gov/apps/list/press/fi
CSU LA - FIN - 331
CSU LA - FIN - 331
Improv Class: As mentioned in class, I recommend the following improv workshop for anyone wishing to improve their presentation skills. It meets once a week for twelve weeks. It will help you learn to think on your feet, and make you more comfortable
CSU LA - FIN - 331
Presentation Topics: Banking Crisis and Scandals BCCI Scandal, what happened, how, and why? (What could have prevented Scandal?) MGRM what happened, how, and why? (How could it have avoided its losses?) The impact of the Ruble Crisis, what was it,
CSU LA - FIN - 335
Fin 335 Project The purpose of this project is to force you contemplate your personal, professional, and financial goals, and to begin creating plans to obtain them. The project can be easy or hard, and fun or miserable. It will be easy if you know w
CSU LA - FIN - 335
California State University FIN 335: Personal Finance M 6:10-10:00PM Associate Professor: James F. Refalo Office Hours: M: 4:00-6:00PM, Simpson 611 Email: jrefalo@calstatela.edu, Website: http:/instructional1.calstatela.edu/jrefalo/ Course Descriptio
CSU LA - FIN - 335
CSU LA - FIN - 335
Improv Class: As mentioned in class, I recommend the following improv workshop for anyone wishing to improve their presentation skills. It meets once a week for twelve weeks. It will help you learn to think on your feet, and make you more comfortable
CSU LA - FIN - 403
California State University FIN 403: Intermediate Business Finance MW 4:20-6:00PM Associate Professor: James F. Refalo Office Hours: TBA, Simpson 611 Email: jrefalo@calstatela.edu, Website: http:/instructional1.calstatela.edu/jrefalo/ Course Descript
CSU LA - FIN - 403
CSU LA - FIN - 531
CSU LA - FIN - 531
PV Problem Set 1. Assume a .05 (5%) time value of money. We have a debt to pay and are given a choice of paying \$1,000 now or some amount X five years from now. What is the maximum amount that X can be for us to be willing to defer payment for 5 year
CSU LA - FIN - 531
1. Suppose that a share of IBM stock costs \$100 today, the 1-year forward is \$110 per share, and the 1-year risk free rate is 9% (assume that you can both borrow and lend at the risk-free rate). Is there a way to earn arbitrage (that is risk-free pro
CSU LA - FIN - 531
CSU LA - FIN - 531
Improv Class: As mentioned in class, I recommend the following improv workshop for anyone wishing to improve their presentation skills. It meets once a week for twelve weeks. It will help you learn to think on your feet, and make you more comfortable
CSU LA - FIN - 335
Fin 335 Bond Problems 1) Compute the present value for a coupon bond that promises to pay a coupon (interest payment) of \$50 a year for 30 years and has a face value of \$1,000. The first interest payment is one year from now. Use a rate of discount o
CSU LA - FIN - 335
FIN 335 For access to all power points and solutions to homework problems, go to the following website: http:/www.coursecompass.com/. Go to the Student Login. Login name: studentsolutions Password: student Click on the Solutions Manual Link, from the
CSU LA - FIN - 335
PV Problem Set 1. Assume a .05 (5%) time value of money. We have a debt to pay and are given a choice of paying \$1,000 now or some amount X five years from now. What is the maximum amount that X can be for us to be willing to defer payment for 5 year
CSU LA - FIN - 335
Options: 1) Call Option: The right to buy (but not the obligation) an asset at a predetermined price (the Strike or Exercise price), on (a European style option), or up to (an American style option), a preset maturity date. Option PayoffStrikeSto
CSU LA - FIN - 335
Lecture 2: Time Value of Money Present Value Theory: 1) Value of a dollar address compounding0111.0521.05231.053 T1.05Ta. b.c. d.e.f. g.So if youre going to get \$1 a year from now, whats it worth today? How about \$1 two years
CSU LA - FIN - 335
Chapter 11Auto and Homeowner's InsuranceChapter Objectives Explain the role of risk management Outline typical provisions of auto insurance Describe financial coverage provided by homeowner's insuranceCopyright 2007 Pearson Addison-Wesley. A
CSU LA - FIN - 403
Present Value Theory, Bond Pricing, and Dividend Discount:1) 01Value of a dollar we must address compounding (Time Value)11.0521.05231.053 .T1.05Ta. b.c.d. e.f.g.If you're going to receive \$1 a year from now, what's it worth
CSU LA - FIN - 403
NPV: 1) DefinitionNPV: PV(CFs) Investment n CF NPV = t I0 (1 + k ) t t =1-The PV of the Cash-flows from an investment minus the cost of the initial investment; k is the interest rate or cost of capital2)0 -700Example: 10-year, 10% coupon b
CSU LA - FIN - 403
Alternative Measures of Investment Performance to the NPV1)IRR: Internal Rate of Return the Yield on an investment i. Analogous to the yield on a bond ii. Definition: the discount rate at which the NPV of an investment is zero. iii. Considers all
CSU LA - FIN - 403
Determination of Cash-Flows to be used for Investment Valuation1)Relevant vs. Irrelevant Cash-Flows Summary a. Cash-flows stemming from a Capital Budgeting Decision (course of action) b. Forget Sunk Costs (previous CF's) c. Include all &quot;Real&quot; CF's
CSU LA - FIN - 403
Single Investment Risk Analysis 1) Sensitivity Analysis a. Objective is to analyze sensitivity to specific factors b. Think about extreme cases and plausible levels c. Vary one (or more) variables in a systematic manner-assess the impact on terminal
CSU LA - FIN - 403
Mutually Exclusive Investments 1) Mutually Exclusive Investments a. What are theyinvestments which cannot be conducted simultaneously b. Either for Economic Reasons (capital constraints) or Operational Reasons (pursuing one operationally or strategic
CSU LA - FIN - 403
Annual Equivalent Costs 1) Comparing Investments with Different Lives (Equivalent Annual Annuities) a) Approach: PV the CFs, create annual annuities for the life of each investment, and compare the annual benefit/cost. b) Merely comparing the PV of o
CSU LA - FIN - 403
Capital Structure 1) Overview a. Single Focus Can we maximize the value of a firm by altering capital structure? (If so, How?) b. Punch-line Yes, by minimizing the WACC. c. Since the value of a firm is the discounted value of its OCF's, then minimi
CSU LA - FIN - 403
FantasyLand - No Taxes, Perfect Info, No Bankruptcy Everyone borrows at same rate,. Equity Debt Total Investment \$4,000,000.00 \$4,000,000.00 \$2,000,000.00 \$2,000,000.00 \$4,000,000.00Add in Corporate Taxes Equity Debt Total Investment \$4,000,000.00
CSU LA - FIN - 403
Problem Set 1a: Present Valuing Bonds, Loans, and other Cash-Flows General Instructions: Write out a time line showing the Cash-flows (CF's) and the algebraic equations for each problem. Solve the problems algebraically, before using your calculator.
CSU LA - FIN - 403
Problem Set 2: NPV and WACC 1) Suppose that a business is expected to produce EBIT of \$3M per year for the next 10 years. At a 15% cost of capital, what would you be willing to pay for it? How about if we expect it to produce the same cash flows for
CSU LA - FIN - 403
Revenues Expenses Depreciation EBIT Taxes NI OCF450,000 (100,000) (250,000) 100,000 (30,000) 70,000 320,000Borrowing Rate After Tax Rate NPV (millions)0.0% 0.0% 1.405.0% 3.5% (0.45)10.0% 7.0% (1.61)15.0% 10.5% (2.37)20.0% 14.0% (2.88)
CSU LA - FIN - 403
Problem Set 3: Alternative Measures of Performance (IRR, MIRR, and Payback) Draw a time-line and enter the appropriate cash-flows. (Don't forget taxes-or to take out taxes-if appropriate.) 1) Suppose that you pay \$100 and receive \$25 for the next 3 y
CSU LA - FIN - 403
Assumptions Initial Investment Initial Working Capital Total Investment Sales/Cost Growth Accounts Receivable Inventories Supplies Product Payables Accounts Payable Accruals (Wages) Taxes NWC Salvage \$2,000.00 100.00 \$2,100.00 10% 15% of Sales 10% of
CSU LA - FIN - 403
Problem Set 5: Sensitivity Analysis Suppose that you are considering the acquisition of a factory that specializes in the manufacture of a nose hair trimmer. The device is used by older people to trim protuberances from their nostrils. The device is
CSU LA - FIN - 403
Problem Set 6: Mutually Exclusive Investments Suppose that you own a small automobile rental agency and you have about \$30,000 available to invest. You can purchase three vehicles for your fleetyou typically keep them for two years, and then sell the
CSU LA - FIN - 403
Problem Set 7: Lease vs. Buy, and Annual Equivalent Costs 1) Micro-Technologies is a Bio Tech research firm that is conducting research on a cure for Aids. Their sole current source of revenues is from the sale of research data that they have collect
CSU LA - FIN - 403
PV Problem Set 1. Assume a .05 (5%) time value of money. We have a debt to pay and are givena choice of paying \$1,000 now or some amount X five years from now. What is the maximum amount that X can be for us to be willing to defer payment for 5 yea
CSU LA - FIN - 403
NPV Problems 1. The cost of a new lathe is \$20,000 is expected to return cash flows net of operating costs of \$9,000 per year for 5 years. Assume a cost of capital is 10%. What is the most you should be willing to pay for this machine? n Ci CF0=-20,0
CSU LA - FIN - 403
Alternative Measure Problems: 1. Compute the net present value (NPV) for each of the following investments. Assume a 10% cost of capital. Investment A B CNPV =0 (1,000) (1,000) (1,000)1 100 2642 100 2643 100 2644 100 2645 1,100 264 1,611
CSU LA - FIN - 403
0 -20,000 Disc Rt 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 26% 27% 28% 29% 30% NPV Dis Payback (\$4,000.00) \$36,000.00 (\$3,431.11) \$34,627.52 (\$2,921.03) \$33,308.20 (\$2,464.97) \$32,039.38 (\$2,058.55
CSU LA - FIN - 403
Relevant Cash-Flows for Analysis 6.5 A Company is considering an investment. A snapshot of one year's financial information is shown below. Item Amount Sales \$200,000 Manufacturing cost of sales 80,000(Includes \$20,000 of depreciation)Selling and
CSU LA - FIN - 403
Risk Analysis (Solutions SE Chapter 12) 12.5 Salt Lake Systems is a small company started by two recent college graduates to market a small-business inventory management system they developed and patented as a class project. The system requires a spe
CSU LA - FIN - 403
Mutually Exclusive Investments 5.2 a) There are 3 mutually exclusive investments: A, B, and C, which of the 3 should be chosen if you can only choose one? Suppose you are restricted only to investing a total of 11,000, what would you do? Assume a cut
CSU LA - FIN - 531
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