Suppose that there are two securities RAIN and SUN. RAIN pays $100 in there is any rain during the next world cup soccer final. SUN pays $100 in there is no rain. Suppose that the world cup soccer final is 1 year from today (although this is not true), and suppose that RAIN is trading at a price of $23 and SUN is trading at a price of $70.

(a) If you buy 1 share of RAIN and 1 share of SUN, what is your payoff after 1 year, depending on the weather?

(b) What does the No-Arbitrage Condition imply about the price of a 1-year zerocoupon bond? (Assume no trading costs.)

(c) Suppose that a 1-year zero-coupon bond is trading at $90. Show how you would set up a transaction to earn a riskless arbitrage profit. (Assume no trading costs.) (d) Suppose that trading zero-coupon bonds is costless, but trading RAIN and SUN each cost $2 per $100 face value. Can you still make an arbitrage profit?

Which of the following is not a potential problem with beta and its estimation? sometimes, during a period when the company is undergoing a change such as toward more leverage or riskier assets, the calculated beta will be drastically different than the "true" or "expected future" beta. the beta of "the market," can change over time, sometimes drastically.

What is a sort of auction for stocks in which traders verbally submit their offers?

Suppose that xtel currently is selling at $40 per share. you buy 500 shares using $15,000 of your own money, borrowing the remainder of the purchase price from your broker. the rate on the margin loan is 8%. a. what is the percentage increase in the net worth of your brokerage account if the price of xtel immediately changes to (a) $44; (b) $40; (c) $36? (leave no cells blank - be certain to enter "0" wherever required. negative values should be indicated by a minus sign. round your answers to 2 decimal places.) b. if the maintenance margin is 25%, how low can xtel’s price fall before you get a margin call? (round your answer to 2 decimal places.) c. how would your answer to requirement 2 would change if you had financed the initial purchase with only $10,000 of your own money? (round your answer to 2 decimal places.) d. what is the rate of return on your margined position (assuming again that you invest $15,000 of your own money) if xtel is selling after one year at (a) $44; (b) $40; (c) $36? (negative values should be indicated by a minus sign. round your answers to 2 decimal places.) e. continue to assume that a year has passed. how low can xtel’s price fall before you get a margin call? (round your answer to 2 decimal places.)