THE FLIPPED DREAM Jimmy Summertop is a university student and has chosen to read finance courses. His younger sibling Jenny Summertop is still small and often makes Jimmy play a student while she becomes his teacher. She would put on a serious expression on her face and make him write numbers from one through ten, while trying to balance their mothers reading glasses on the bridge of her small nose. Today, Jimmy is tired because of trying to meet a submission deadline for one of the assignments for Dr. Bs course and while Jenny is asking her pesky alphabet related questions, he falls asleep on the couch and dreams of Dr. B. Dr. B is someone who Jimmy has never seen in reality because of virtual classes during the COVID pandemic. He does not use video feeds in his virtual classes to save bandwidth and all that Jimmy recognizes is his voice coming through his computers speakers. In his effort to make everyone understand a concept, Dr. B becomes boring at times because he lingers on a particular topic for longer than necessary. He also asks questions and compels his students to think about issues related to a concept under discussion . Recently, he has mentioned a teaching technique called a flipped classroom, where reading material on a particular topic is circulated to the students before a live session and the session itself is devoted to discussions and problems around that area of study. Mind is a strange machine. During Jimmys short sleep, his mind prepared a concotion of Jenny with moms glasses urging him on, Dr. Bs assignment and his droning voice. All these things create a flipped dream where Jimmy is the teacher and decides to ask some questions to Dr. B, hoping to get even for the torture he has been throughout the semester with his long lectures. Gosh! He thinks to himself in the dream, the man is full of himself. He even records his lectures and shares them for people to go over the whole stuff again. I mean, come on!. As Jimmys sleep deepens, Dr. Bs voice fades and is gradually replaced by an old but familiar melody from Pink Floyd as somewhere in the background the computer begins to playwe dont need no educationhey teachersleave them kids alone Jimmy hums in sleep and prepares a few questions for Dr. B to answer. Assuming yourself to be Dr. B, answer the questions that Jimmy has set in his dream for Dr. B. The questions are as follows: 1. The current spot exchange rate is $1.85/ and the three-month forward rate is $1.80/. Based on your analysis of the exchange rate, you are pretty confident that the spot exchange rate will be $1.82/ in three months. Assume that you would like to buy or sell 1,000,000. a) What actions do you need to take to use these rates to earn a profit?? What is the expected dollar profit from speculation?

b) What would be your speculative profit in dollar terms if the spot exchange rate actually turns out to be $1.76/.

Consider a 30-year, fixed-rate mortgage for $100,000 at a nominal rate of 9%. If the borrower wants to pay off the remaining balance on the mortgage after making the 12th payment, what is the remaining balance on the mortgage?

Compute the EAR of a 20-year, 6% fixed rate mortgage loan of $150,000 with 2 discount points and monthly repayments.

Assuming Japan to be the home country, suppose you have the following data: Japense interest rate = 1% p.a. Brazilian interest rate = 10% p.a. Spot rate = 0.025 BRL / Yen 1-year forward rate = 0.026 BRL / Yen Based on these data; a) Compute the annualizaed forward premium/discount on Yen b) Compute the annual interest rate differential between countries c) Is there a possibility for earning risk-free profit? If so, compute the profit if you have an equivalent of 100 million Yen at your disposal d) What is such profit called? e) At what forward rate, the profit making arrangement will lose its lucrativeness?