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Unformatted text preview: % on both savings and loans, and
Bank Two offers an interest rate of 6% on both savings and loans.
a. What arbitrage opportunity is available?
b. Which bank would experience a surge in the demand for loans? Which bank
would receive a surge in deposits?
c. What would you expect to happen to the interest rates the two banks are offering?
15. If the cost of buying a CD and ripping the tracks to your iPod (including your time)
is $25, what is the most Apple could charge on iTunes for a whole 15-track CD?
16. Some companies cross-list their shares, meaning that their stock trades on more
than one stock exchange. For example, Research In Motion, the maker of BlackBerry
mobile devices, trades on both the TSE and NASDAQ. If its price in Toronto is 100
Canadian dollars per share and anyone can exchange Canadian dollars (CAD) for U.S.
dollars (USD) at the rate of 0.95 USD/CAD, what must RIM’s price be on NASDAQ?
*17. Use the concept of arbitrage and the fact that interest rates are positive to prove that
time travel will never be possible. 03_ch03_berk.indd
03_ch03_berk.indd 87 12/15/11 8:08 PM...
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- Spring '07