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1. Suppose that all goods and services are tradeable. A basket of goods and services in the United States costs $110 and the same base in England costs £100. The current spot rate is E$/£=1.2. Is the British pound over or undervalued relative to the US dollar?

2. You have $30,000 in a margin account, 60% initial margin required. Suppose you buy 1,000 shares of IBM, for $50/share. Assume no dividends, and that your borrowing rate is 6.2%. What is your percentage rate of return if, in one year, IBM stock is selling for $39 per share?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92790512

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