Question Details

(solution) ====================================== Though the real estate


Microsoft Word - E24466.S15MSIREOnline&F2F Ten Days Advance Release Template Only.docx

Hello!


I need the attached answers ASAP. I appreciate your help and please provide how you came to the conclusions (what mathematical calculations). 


Thank you!


======================================

 

Though the real estate market has been depressed in some countries due to the aftermath of the

 

global financial crisis, the markets in a few countries or cities have kept their robust growth in

 

prices and expansions. A noteworthy case is the commercial and residential properties in

 

Copenhagen, Denmark.

 

To tap into the above market, you have already entered into a sizeable investment in a

 

commercial property. The currency of Denmark is Danish Kroner, or Krone, and we use DKK

 

for it hereon.

 

In brief, you have made arrangements for the purchase of a commercial property in Copenhagen

 

for DKK 210.00 million. The functional currency of your company is the US dollar. Through

 

the help and guidance of your real estate agent, lots of detailed arrangements, including signing

 

of the contract, computing the closing costs, funding the purchase, etc., have already been taken

 

care of. The only remaining item that is the subject of this inquiry is a lump sum payment of

 

DKK 11,800,000.00 upon the occupancy (delivery) of the property, which is scheduled for nine

 

months from today.

 

Considering the variations in the currency market these days, you are very concerned that your

 

expected payment of DKK 11,800,000.00 may impose unnecessary foreign exchange risk for

 

your company. You are considering several hedging alternatives to reduce the exchange rate risk

 

arising from this purchase. You evaluate your position in USD at all times. The following

 

information is made available to you today:

 

!

 

!

 

!

 

!

 

!

 

!

 

! The spot exchange rate is DKK 6.8911/$

 

The nine month forward rate is DKK 6.9866/$

 

Forecast of the management for the end of the ninth month is DKK 7.10/$

 

The company?s cost of capital is 10 percent per year.

 

The Danish 9-month borrowing or lending rate is 5.5 % per annum

 

The U.S. 9-month borrowing or lending rate is 3.2 % per annum

 

A call or put option for the strike price of DKK 6.90/$ carries a premium of 1.14 percent

 

for this period. Based on the above information, first please read again the entire instructions above, then answer

 

the following FIFTEEN questions (why so many? See above!).

 

1. If your company chooses to hedge this exposure in the forward market, calculate the outcome

 

of this hedge in the US dollar.

 

2. If your company chooses to hedge this exposure in the forward market, the outcome of this

 

hedge in the US dollar is certain (=1, enter 1 in the template), risky (=2, enter 2 in the

 

template), certain and risky (=3, enter 3 in the template).

 

2 3. If your company hedges this exposure in the money market, calculate the outcome of this

 

hedge today assuming the company borrows and invests at the prevailing market rates that

 

are cited above.

 

4. If your company hedges this exposure in the money market, calculate the outcome of this

 

hedge in nine months assuming the company borrows and invests at its WACC rate.

 

5. If your company hedges this exposure in the money market, the outcome is (chose the best

 

answer) Known (=1), unknown (=2), risky (=3), known and certain (=4).

 

6. If the options market is employed as a hedge, and if the company eventually exercises the

 

option at the very end of the period, calculate the amount from only exercising the option.

 

7. If the options market is employed as a hedge, and if the company eventually exercises the

 

option at the very end of the period, calculate the total outcome of this hedge. The company

 

uses its WACC when it enters the options market.

 

8. If the options market is employed as a hedge, and if the company does not exercise the

 

option, calculate the cost of the option at the beginning of the period. The company uses its

 

WACC when it enters the options market.

 

9. If the options market is employed as a hedge, and if the company does not exercise the

 

option, calculate the cost of the option at the very end of the period. The company uses its

 

WACC when it enters the options market.

 

10. If the options market is employed as a hedge, and if on the very last day of the option

 

maturity, the spot rate would be DKK 7.19, calculate the total outcome of the option hedge.

 

The company uses its WACC when it enters the options market.

 

11. If the options market is employed as a hedge, and if on the very last day of the option

 

maturity, the spot rate would be DKK 6.91, calculate the total outcome of the option hedge.

 

The company uses its WACC when it enters the options market.

 

12. If the company chooses not to hedge at all, the outcome is known (=1), unknown (=2).

 

13. If the company chooses not to hedge at all, the outcome is certain (=1), risky (= 2).

 

14. If the company chooses not to hedge at all and its forecasts turn out to be correct, calculate

 

the outcome of this scenario.

 

15. Some of the hedging strategies that are covered in Chapter 10, e.g., options, futures, etc., are

 

simple examples of derivatives. I agree (=1). I disagree (=2) 3

 


Solution details:
STATUS
Answered
QUALITY
Approved
ANSWER RATING

This question was answered on: Jan 30, 2021

PRICE: $15

Solution~0001001674.zip (25.37 KB)

Buy this answer for only: $15

This attachment is locked

We have a ready expert answer for this paper which you can use for in-depth understanding, research editing or paraphrasing. You can buy it or order for a fresh, original and plagiarism-free solution (Deadline assured. Flexible pricing. TurnItIn Report provided)

Pay using PayPal (No PayPal account Required) or your credit card . All your purchases are securely protected by .
SiteLock

About this Question

STATUS

Answered

QUALITY

Approved

DATE ANSWERED

Jan 30, 2021

EXPERT

Tutor

ANSWER RATING

GET INSTANT HELP/h4>

We have top-notch tutors who can do your essay/homework for you at a reasonable cost and then you can simply use that essay as a template to build your own arguments.

You can also use these solutions:

  • As a reference for in-depth understanding of the subject.
  • As a source of ideas / reasoning for your own research (if properly referenced)
  • For editing and paraphrasing (check your institution's definition of plagiarism and recommended paraphrase).
This we believe is a better way of understanding a problem and makes use of the efficiency of time of the student.

NEW ASSIGNMENT HELP?

Order New Solution. Quick Turnaround

Click on the button below in order to Order for a New, Original and High-Quality Essay Solutions. New orders are original solutions and precise to your writing instruction requirements. Place a New Order using the button below.

WE GUARANTEE, THAT YOUR PAPER WILL BE WRITTEN FROM SCRATCH AND WITHIN A DEADLINE.

Order Now