1. The stock of XYZ Corp. is trading for $100 on the New York Stock Exchange and $97 on the London Stock Exchange. Assume that the costs of buying and selling the stock on both exchanges are negligible.

a. What could you do to make a profit in this situation? What is this called?

b. As you keep doing what youre doing to make a profit, what would you expect to happen to the price on the New York Stock Exchange and the price on the London Stock Exchange?

c. Now assume that the cost of buying and selling shares of XYZ Corp. is 4% per transaction. How does this affect your answer?

2. Answer the following questions regarding Social Security.

a. Define Social Security.

b. How exactly does paying into Social Security affect your retirement savings?

c. Suppose you are 40 years old and plan on retiring in 25 years, and then living for another 15 years after retirement. Your current income is $70,000 per year. If you pay $3,000 in Social Security taxes each year, how much do you need to save per year in order to have enough to replace 75% of your preretirement income at retirement when combined with Social Security (assuming no increase in wages and that your rate of interest will exceed inflation by 4%)?

3. Suppose the price of gold is $850 per ounce.

a. If the pound sterling price of gold is 560 per ounce, what should you expect the pound price of a dollar to be?

b. If it actually only costs 0.50 to purchase a dollar, could you make a profit here? If so, how? And if not, why not?

4. Suppose you are fresh out of college and plan to immediately start working and retire in 40 years, after which you plan to live for another 20 years after retirement. Assuming that the interest rate from now until the end of retirement will average about 5% and that your income before retirement will likely be about $80,000 per year, how much should you save annually between now and retirement:

a. If you want to replace about 75% of your pre-retirement income after retirement?

b. If you want to spend the same amount of money after retirement as you did before retirement?

5. Assume you have operated your business for 20 years. Sales for the most recent fiscal year were $15,000,000. Net income for the most recent fiscal year was $2,000,000. Your book value is $12,500,000. A similar company recently sold for the following statistics:

Multiple of Sales:1.2x

Multiple of Net Income:8x

Multiple of Book Value:0.7x

a. What is an appropriate range of value for your company?

b. If you know that your company has future investment opportunities that are far more profitable than the company above, what does that say about your companys likely valuation from section (a)?