Problem #1 Cassandra Co., a U.S. corporation, purchased inventory from a company in Sweden on November 18, 2014 when the Swedish krona was trading at 1 krona = $0.161. The transaction was for 600,000 krona, and was to be paid in krona in 90 days. Crabby closed their books at December 31 for financial reporting purposes when the krona was trading at $0.167. On February 16, 2015, Crabby paid the invoice when the krona was trading at $0.156. Required: Show the journal entries recorded by Crabby on November 18, 2014, December 31, 2014, and February 16, 2015.

Problem #2 Preston Company uses nylon as raw materials to manufacture their products. Preston Company is planning to purchase nylon from Tangsun Company on January 30, 2015 with payment on that date of 1.5 million in Chinese yuan. On November 1, 2014, Preston entered into a 90-day forward contract to buy 1.5million yuan for $0.15 per yuan (the spot rate is $0.17). Preston anticipates significant increases in the USD value per yuan. The forward contract is to be settled net. On December 31, 2014, Preston's year-end, the forward rate for delivery on January 30, 2015 is $0.20 per yuan. The spot and forward rates on January 30, 2015 are $0.22 per yuan. Preston uses a 6% discount rate relating to their hedging activity. Preston purchases 1.5 million yuan on January 30 when the forward contract expires. Monthly effective interest rate = 4.08627% Monthly discount (or interest) rate = 6%/12 months = 0.5% Required: Prepare the necessary journal entries to account for this cash flow hedge and related purchase of nylon by follow the steps below: Step 1. calculate contract discount Step 2. prepare amortization schedule for contract discount Step 3. calculate FV of forward contract Step 4. prepare journal entries 1) On 11/1/14 2) On 12/31/14 3) On 1/30/15

OMP is the Fed's monetary operation through which the Fed purchases securities from banks to boost the economy.

The Federal Open Market Committee consists of 12 members to vote at the time ofeach meeting.

When the economy is slow, the Fed takes up an OMP operation to push the supply curve of reserves to the right and thus reduce the federal fund rates down to the preset target level.

The Federal Open Market Committee consists of 19 members to vote at the time of each meeting.

The Fed has three monetary tools to control the money supply, of which the most important is OMO.

The Federal Reserve Bank of New York is in charge of OMO on behalf of the Federal Reserve System.

OMS is the Fed's monetary operation through which the Fed sells securities to banks to slow down the economy.

The Fed lends money to banks at an interest rate called "discount rate." It is called so because the Fed lends money to its member banks at a rate lower than other banks.

6. XYZ Inc., an all equity company, has expected earnings over the next year of $2/share (E1= 2). The company is expected to maintain an earnings retention rate of 40% (b = 0.4), i.e., 60% of learnings are expected to be paid out as dividends every year. The company has an equity beta of 2,the risk-free rate is 2% (rf = 2%), and the market risk premium is 4% (rM-rf = 4%). a. What is the required return on XYZ's equity? b. If the growth rate in earnings is expected to be 4% in perpetuity (i) What is the value of the stock? (ii) What is the expected return over the next year? c. If the current price of the stock is $16/share, what is the implied growth rate of earnings(and dividends)?

5. Assume the risk-free rate is 2% (rf = 2%), the expected return on the market portfolio is6% (rM = 6%) and the standard deviation of the return on the market portfolio is 15% (ƠM = 15%).Assume the CAPM holds. A stock with a beta of 1 has a return standard deviation (volatility) of 30% return?a. What is the standard deviation (volatility) of the systematic component of the stock's b. What is the standard deviation (volatility) of the idiosyncratic component of the stock's c. What percentage of the stock's return variance is systematic?

1. Assume the risk-free rate is 2% (rf = 2%), the expected return on the market portfolio is 6% (rM = 6%) and the standard deviation of the return on the market portfolio is 15% (ƠM = 15%).(All numbers are annual.) Assume the CAPM holds. a. What are the expected returns on securities with the following betas: (i) ß = 1.4 (ii) ß = 0.6(iii) B = -0.2 b. What are the betas of securities with the following expect returns: (i) 10% (ii) 5% (iii) -1% c. What are the portfolio weights (in the risk-free asset and the market portfolio) for efficient portfolios (portfolios on the efficient frontier/CML) with expected returns of (i) 4% (ii) 5% (iii) 7% d. What are the portfolio weights (in the risk-free asset and the market portfolio) for efficient-portfolios (portfolios on the efficient frontier/CML) with standard deviations of (i) 6% (ii) 15% (iii)21% e. For a moment (but just a moment) assume that the CAPM may not hold. A non-dividend paying stock has a current price of $50/share and an expected price in 1 year of $53/share (based on your personal analysis of the company's prospects). (i) If the stock has a beta of 1 (ß = 1.0), what is its alpha (x)? (ii) What is the alpha (α) if the beta is 2 (ß = 2.0)?