Exam 3: The Valuation Principle: the Foundation of Financial Decision Making

The exchange rates in New York are ¥1000 = $9 and the exchange rates in Tokyo are ¥171 = $1.5.You incur a transaction fee of 0.1% when buying and selling in each market.You have $1 million dollars with which to purchase foreign currency.What is your maximum potential profit from exploiting the arbitrage opportunity?

Is there a need to distinguish between cash inflows and outflows on a timeline?

You see on Kijiji that a used XBOX One sells for $100 and a new XBOX One sells for $300.Is this an arbitrage opportunity?

To calculate a cash flow's present value (PV),you must compound it.

What is the present value (PV)of $66,000 received 7 years from now,assuming the interest rate is 9% per year?

The rule of 72 tells you approximately how long it takes for money invested at a given rate of compound interest to double in value.

You are watching TV late one night and see an ad from Ronco for the Dial-o-matic food slicer.You learn that the Dial-o-matic sells for $29.95.But wait,there's more! Ronco is also including in this deal a set of Ginsu steak knives worth $10.95 and another free gift worth $7.95.Assuming that there is a competitive market for Ronco items,at what price must Ronco be selling this three item Dial-o-matic deal to ensure the absence of an arbitrage opportunity and uphold the Law of One Price?

Refer to the table above.An international seafood supplier is offered 9.45 million yen today for 1000 pounds of abalone frozen in the shell.The abalone can be sourced from various countries at the prices shown above.The current market exchange rates between the United States and the other relevant currencies are also shown.In addition,$1 U.S.= 105 yen.What is the value of the best deal the international seafood supplier can make,in U.S.dollars?

Michelle is saving for a new car.She wants to have $25,000 in her account in 3 years.If her account pays 11% interest,how much money will she need to put in her account now,to ensure that she has $25,000 in 3 years?

Explain the role played by some of the other management disciplines in financial decision making.

Owen expects to receive $20,000 at the end of next year from a trust fund.If a bank loans money at an interest rate of 7.5%,how much money can he borrow from the bank on the basis of this information?

Which of the following best explains why you cannot use the price of rolled oats at a local supermarket as the competitive market value of rolled oats?

On Commodity Exchange A it is possible to buy and sell crude oil at $117 per barrel,while on Commodity Exchange B crude oil can be bought and sold at $118 per barrel.If there are transaction costs of 1% when buying or selling on either exchange,what is the net effect of buying a barrel of oil on Exchange A and selling it on Exchange B?

Dollar amounts received at different points in time cannot be compared in absolute terms.

What is one of the prerequisite conditions for the Valuation Principle to work?

You are scheduled to receive $10,000 in one year.An increase in the interest rate will have what effect on the future value of this cash flow?

Use the information for the question(s)below. As an oil refiner,you are able to produce $76 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS)crude oil.Because of its lower sulfur content,you can produce $77 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI)crude. -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,the added benefit (cost)to you if you take the trade is closest to:

Which of the following statements regarding the Law of One Price is most accurate?

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

Use the information for the question(s)below. As an oil refiner,you are able to produce $76 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS)crude oil.Because of its lower sulfur content,you can produce $77 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI)crude. -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 just purchased 10,000 Bbls of WTI crude at the current market price,the total benefit (cost)to you if you take the trade is closest to: