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 Fed's goals are to promote economic growth and also maintain price stability.

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

In compliance with The Violence Against Women Reauthorization Act of 2013,XCorp provides housing protections for victims of domestic violence, dating violence, sexual assault, and stalking in covered housing programs. XCorp is considering renovating an old building in downtown Chicago. The investment consists of a down payment of $12,275 now, followed by payments of $6,500 in year one, and then $500, $6,100, $3,250, $2,000 and $3,300 in the following five years. 1). Using Time Value of Money, when will XCorp break even if it moves forward with this investment? 2). Please show the NPV Problem XCorp plans to sell a $2.5 million bond. The money is needed to provide additional funding to open new community-based shelters and reduce reliance on commercial hotels, and support the transition from shelter to permanent housing. The bond matures in 12 years and requires semiannual interest payments. The stated interest rate is 5.25 percent, but rates have fallen to 4.96 percent in the market. How much will the XCorp receive when it sells thebond?

How much would be the Required Reserve of a commercial bank out of a $1000 deposit if RRR = 10%?

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.

How much money would be the excess reserve of a commercial bank out of a $1000 deposit if RRR = 10%?

FOMC meets eight times a year; it may meet more in case of an economic emergency.

The Fed's Board of Governors is appointed by the US President but should be approved by the Chair of the Fed.

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.

Under the dual banking system, national banks are chartered and regulated under federal law and supervised by a federal agency. State banks are chartered and regulated understate laws.

3. Consider a firm with two equally sized divisions (in terms of their value) that engage incompletely different lines of business with different risks. a. If these 2 divisions have betas of 0.8 and 1.3, what is the beta of the firm? b. If one division has a beta of 0.8, and the beta of the firm is 1.0, what is the beta of the second division? c. For the firm in part (b), what beta should be used to compute the cost of capital for the low risk division, i.e., should it be the firm beta (1.0) or the divisional beta (0.8)?

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)?

7. XYZ Inc. is expected to pay no dividends for the next 5 years. However, at the end of the sixth year (at time 6), the company is expected to pay a dividend of $1/share. Dividends are expected to grow at 10% per year for the following 9 years (through the end of the 15th year, i.e., time 15),then to grow at 3% every year thereafter (forever). The company has an equity beta of 1, 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. What is the expected value of the stock at time 15 (not including the time 15 dividend)? c. What is the expected value of the stock at time 5? d. What is the value of the stock today?

2. Assume that there are 3 firms in an industry for which you wish to compute an industry beta. The betas of these 3 firms are 1.1, 1.2, and 1.4. a. What is the beta of an equal-weighted portfolio of the 3 firms? b. If the market capitalizations of the 3 firms are $100 million (beta 1.1), $200 million (beta1.2), $300 million (beta 1.4), what is the beta of a market capitalization, value-weighted industry portfolio?

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?

4. The spreadsheet contains 60 months of monthly data on the excess returns on 3M (the maker of Post-it Notes among many other things) and the US stock market. Run a linear regression(SCL regression) of the returns on 3M on the returns on the market portfolio, using the regression tool in Excel. (There is a video and associated Excel file illustrating how to do this using data on Apple. Put the regression results elsewhere in the spreadsheet, and put references to the cells with the correct answers in the highlighted cells.) a. What is 3M's beta from this regression? b. What is 3M's monthly alpha? c. What percentage of 3M's total risk (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)?