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ololo11 [35]
3 years ago
5

Suppose the interest on a foreign government bonds is 7.5%, and the current exchange rate is 28 foreign currencies per dollar. I

f the forward exchange rate is 28.5 foreign currencies per dollar, and the current US risk-free rate is 4.5%, what is the implied risk premium of the foreign government bond
Business
1 answer:
alexandr1967 [171]3 years ago
4 0

Answer:

implied credit spread =  1.13 %

Explanation:

given data

interest on foreign government bonds = 7.5%

current exchange rate = 28

forward exchange rate = 28.5

risk-free rate = 4.5%

solution

we get here risk free rate by the forward exchange rate that is

F = spot exchange rate × \frac{1+Rr}{1+Rs}   ....................1

put here value

28.5 = 28 ×  \frac{1+Rr}{1+0.045}  

solve it we get

Rr = 0.0637

Rr = 6.37%

so

implied credit spread = interest on foreign government bonds - risk free rate

implied credit spread = 7.5% - 6.37%

implied credit spread =  1.13 %

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2 years ago
Carlton Soup Company makes crackers, bread, and soup. Presented here are the items listed on a simplified version of its recent
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Answer:

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Classified Balance Sheet as of July 31 (dollars in millions)

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Current Assets:

Cash and cash equivalents                 $300

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Inventories                                             958

Other current assets                               70

Total current assets                         $1,923

Non-current assets:

Property, plant, and equipment, net 2,397

Other assets                                          132

Intangible assets                               3,023

Total non-current assets                $5,552

Total assets                                     $7,475

Liabilities and Equity

Current Liabilities:

Accounts payable                             $ 668

Accrued expenses                               599

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Total current liabilities                    $2,347

Other noncurrent liabilities             3,806

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Retained earnings                             936

Total equity                                   $1,322

Total liabilities and equity            $7,475

Explanation:

a) Data and Calculations:

Cash and cash equivalents                  300

Accounts receivable                             595

Inventories                                            958

Other current assets                              70

Property, plant, and equipment, net 2,397

Other assets                                         132

Intangible assets                               3,023

Accounts payable                            $ 668

Accrued expenses                             599

Other current debt                           1,080

Other noncurrent liabilities             3,806

Common stock, $0.0375 par value  386

Retained earnings                             936

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2 years ago
When the economy starts expanding there is a/an __________ in the term premium and a/an ___________ in the risk premium. Group o
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