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Question 5 a) The following exchange rates are available to you: Beginning Funds in Swiss Franc (SF) = 10,000,000 Yen/$ = 120 SF/$ = 1.6
Question 5 a) The following exchange rates are available to you: Beginning Funds in Swiss Franc (SF) = 10,000,000 Yen/$ = 120 SF/$ = 1.6 Yen / SF = 80 Compute the arbitrage profit. (5 marks) b) You have recently inherited a sum of $100,000. The current market rate is 5% p.a. and you are thinking of investing the $100,000 in a way that you will be able receive $6,000 every year indefinitely. Will you be successful? (5 marks) c) Briefly describe the mechanism which forces a bond to offer a default risk premium. (50 100 words)
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