1) Southern Home Cooking just paid its annual dividend of $.75 a share. Stock has the market price of $31 and beta of 1. The return on U.S. Treasury bill is 4% and market risk premium is 14%. What is the cost of equity?
2) Company is expecting the payment of 30 million Euros in 90 days. Company estimates that Euro will be at about $1.42/euro in 90 days. Company won’t utilize options to hedge risk. Given the data below, what must the company do?
Spot rate (dollar/euro) $1.4158
Bank A 90-day forward rate $1.4172
Bank B 90-day forward rate $1.4195
WACC 9.600%
i) 90 day dollar interest rate 4.000%
ii) 90-day euro interest rate 3.885%
iii) 90-day dollar borrowing rate 5.000%
iv) 90-day euro borrowing rate 5.000%
3) What simple interest rate would the bank have to present a client to struggle with another bank which offers 20% return compounded daily?