Exam 3: Financial Decision Making and the Law of One Price

Use the table for the question(s)below. -Based upon the information provided about securities A,B,and C,the risk-free rate of interest is closest to:

Use the following information to answer the question(s)below. An exchange traded fund (ETF)is a security that represents a portfolio of individual stocks.Consider an ETF for which each share represents a portfolio of two shares of Apple Inc.(APPL),one share of Google (GOOG),and ten shares of Microsoft (MSFT).Suppose the current stock prices of each individual stock are as shown below: -The price per share of this ETF in a normal market is closest to:

Suppose that Bondi Inc.is a holding company that owns both Pizza Hut and Kentucky Fried Chicken Franchised Restaurants.If the value of Bondi is $130 million,and the Pizza Hut Franchises are worth $70 million,then what is the value of the Kentucky Fried Chicken Franchises?

Use the table for the question(s)below. -If the risk-free rate of interest is 7.5%,then the value of security "A" is closest to:

Consider an ETF that is made up of one share each of IBM,MRK,and C.The current quote for this ETF currently is $162.85 (bid)$163.00 (ask).What should you do?

If the risk-free rate of interest (r_f)is 3.5%,then you should be indifferent between receiving $1000 in one-year or:

Rearden Metal needs to order a new blast furnace that will be delivered in one year.The $1,000,000 price for the blast furnace is due in one year when the new furnace is installed.The blast furnace manufacturer offers Rearden Metal a discount of $50,000 if they pay for the furnace now.If the interest rate is 7%,then the NPV of paying for the furnace now is closest to: A)($15,421) B)$15,421 C)($46,729) D)$46,729

If the risk-free interest rate is 10%,then of the four projects listed,if you could only invest in one project,which one would you select?

If the risk-free rate of interest (r_f)is 6%,then you should be indifferent between receiving $250 in one year or

Which of the following statements regarding the Law of One Price is INCORRECT?

Another oil refiner is offering to trade you 10,150 Bbls of Alaska North Slope (ANS)crude oil for 10,000 Bbls of West Texas Intermediate (WTI)crude oil.Assuming you currently have 10,000 Bbls of WTI crude,what should you do?

When we express the value of a cash flow or series of cash flows in terms of dollars today,we call it the ________ of the investment.If we express it in terms of dollars in the future,we call it the ________.

If the risk-free interest rate is 10%,then the NPV for Moe is closest to:

What is the no-arbitrage price for security C?

If the value of security "C" is $180,then what must be the value of security "A"?

An American Depository Receipt (ADR)is a security issued by a U.S.bank and traded on a U.S.stock exchange that represents a specific number of shares of a foreign stock.Siemens AG has an ADR that trades on the NYSE and is equivalent to one share of Seimens AG trading on the Frankfurt Stock Exchange in Germany.If Seimens trades for $95.19 on the NYSE and for €64.10 on the Frankfurt Stock Exchange,then under the law of one price,the current exchange rate is closest to:

You are offered an investment opportunity in which you will receive $25,000 in one year in exchange for paying $23,750 today.Suppose the risk-free interest rate is 6% per year.Should you take this project? The NPV for this project is closest to:

Walgreen Company (NYSE: WAG)is currently trading at $48.75 on the NYSE.Walgreen Company is also listed on NASDAQ and assume it is currently trading on NASDAQ at $48.50.Does an arbitrage opportunity exists and if so how would you exploit it and how much would you make on a block trade of 100 shares?

By evaluating cost and benefits using competitive market prices,we can determine whether a decision will make the firm and its investors wealthier.This central concept is called:

Suppose that the ETF is trading for $362.36;you should: