ChapｔerSｅvｅnPrinｃｉplesoｆＭaｒkｅtValｕatｉonThiｓchaptercontaｉｎs30multiplechoiｃeｑｕeｓtioｎs,10shorｔproblemsand５lｏnｇerｐroblems.MulｔiｐleChｏｉceIｎrｅgardtoanassｅt，thｅ＿_(dá)______isdefｉnｅｄaｓtheprocｅｓswell－inｆormｅdｉnｖeｓｔoｒsmｕsｔpayfｏritｉnaｆrｅｅaｎdcomｐｅｔｉtｉveｍaｒｋet.ａｎalysｔｖaｌｕeｔechniｃalvalｕｅｃｏmｐetｉtivevaｌuefｕnｄａmeｎｔａlｖaｌｕｅAnsｗer：(d)Incｏrporａｔｅfiｎancｅｄecisｉonmakｉnｇ，aｎexｔremelyiｍpｏrtantｒuｌeistｏcｈoｏseｔheｉnｖｅｓtmentthaｔ__＿_(dá)____currｅntsharehoｌders?wealｔh．mｉnimｉzesmaxｉmizesproｖiｄeｓzeｒocｈanｇｅinjｅｏpaｒdiｚesＡnsweｒ：(b)Iｎasseｔvaluation,ｔhemethｏduｓedtoａｃｃomplisｈｔｈeeｓtｉmａt(yī)ionｄｅpendsｏnthe____＿_(dá)_＿.nｕｍberoｆparticiｐaｎtｓqｕaliｔｙofｃalculatingiｎstrumentsrichneｓsoftheinformationsetaｖailaｂlｅgeograｐｈicloｃatiｏnAｎsｗer:（ｃ)

The______＿＿ｓtａt(yī)esthaｔｉnａcｏｍｐetｉtiveｍａrkｅt,iｆｔwｏasｓetsａreequｉvａlｅｎｔ,theywilltｅndtohaｖetｈesamｅmarkeｔprice.LａwofＲeａlＩｎtｅresｔRａt(yī)esLaｗｏfOnePrｉcｅLaｗｏfＰriceＥｑuivalencｙＬａwoｆFuｔuresAｎswer:(ｂ)TｈeLawofＯneＰｒｉceisenfｏｒｃeｄbｙａpｒocesscalled_＿_(dá)_____,tｈepuｒcｈaｓeandimmediatesaleofeｑuiｖalｅｎtａsｓeｔｓiｎｏrdｅrtoearnａsｕrepｒｏｆitｆromadifｆerenceintｈeｉrprｉces.swappｉｎgｍaximizatioｎａrbｉtragｅｓpｅcuｌationAnsweｒ:（c）__＿_(dá)＿_(dá)＿＿rｅferstｏthetotalityofｃoｓｔｓsuchassｈiｐpｉng,ｈａｎdliｎg,inｓurｉｎｇ,ａnｄｂrokｅrｆees.ＳｈiｐpｉnｇcｏstｓTranｓactｉｏｎｃostｓIｎstａllatioｎcoｓｔsＩnsuraｎceｃostｓAnsweｒ:(b）TｈeLaｗofＯneｐｒｉcｅisaｓtatemenｔaboｕtthepriceoｆoneasｓet____＿_(dá)__thｅprｉceｏfanother．a(chǎn)ｂsolｕtetoreｌativｅtｏmulｔiｐliedbyinｄepenｄenｔｏfAnsｗer:（b)

Ifanｅntityborrｏｗsatalｏｗeｒrateaｎｄleｎｄsaｔaｈigｈerraｔe，thiｓｉsanｅｘampleoｆ＿_(dá)＿_(dá)_＿＿_(dá).oｐpｏrtuｎｉtyaｒｂitrageｉｎtereｓt-rateａｒbiｔｒaｇeｅxcｈangearbitｒａgeｎｏｍiｎalａrbitragｅAnｓｗer：(b)Ifarbｉｔrageｅnsuｒesｔhaｔａnyｔｈrｅe(cuò)curｒeｎciesarefreeｌyconvertibleincompetitivｅmaｒkets,then：itｉsenouｇhtoknowonｌyｏｎｅe(cuò)xchａｎgeｒateｔodeteｒmｉneｔhetｈirdｗecａnesｔiｍatetwoexcｈangeratesｂaｓedｏnoｎｅｅxchａngeraｔeｏnlｙｉtiｓeｎoughtoknowtheexｃｈａｎgeｒatesbetweenａnytwoinordertｏｄeterminｅｔhetｈirdiｔisneceｓｓarytokｎoｗalltｈreeraｔesAnsｗeｒ:(ｃ)Supｐoｓeｙouhaｖe$1５，０00ｉnａbａnｋaｃcoｕntearｎiｎｇanintereｓtrateoｆ４%peｒyｅar.Atｔheｓamｅｔｉmｅｙouhaveanunpaidbalａnceonｙourｃrｅdｉtｃａｒdｏｆ$6,０00onｗhichyｏuarepayinganinteresｔrａｔｅof1７%peｒyear.Wｈａt(yī)aｒbiｔragｅoｐpｏrtｕnitydoｙouｆacｅ?＄2４0perｙeａr$6０0ｐｅｒyear$7８0pｅｒyｅar$1,0２０pｅryｅarAnswer:(c)IfｔheｄoｌｌaｒpriceofJaｐａneseYeｎis$0.0０9594ｐeｒJａｐaneseYeｎandthedollaｒｐriceofＣhiｎｅｓeYuanｉｓ＄０．14３3perＣhiｎｅseYｕaｎ,whatistｈeJａpaｎｅｓeYenpriceoｆaChｉneseYuaｎ?(i.e.,JPY/CNY)０.001３75JPＹ/CＮY０.066950JPY/ＣNＹ9.594ＪPY/CNY１4.9364１９ＪPY/CＮYＡｎswer:(d）

Ifthedｏｌlarpｒｉcｅofguｉlｄｅｒｓis$0.5634ｐｅrGuilderａｎdtｈedoｌlarｐｒicｅｏｆEｕroｓis＄１.5576perＥuro,whａt(yī)iｓthｅEuropｒiｃeoftheGuildeｒ?(ｉ.e.,EUR／ANG)０．3６170０ＥUR/ANＧ0．87７5５2ＥUR/ANG2.764643EＵR/ANＧ5.634EＵR/ＡNＧＡnswer：（ｄ)Ｓｕppｏsｅthepｒicｅofgoｌdiｓ５1.09Britｉsｈpoundsｐeｒｏunce.Ｉfthedoｌｌarpriceoｆgｏldｉs$100peｒounｃe,whatwoｕlｄｙouexpｅｃtthｅｄollarprｉcｅｏｆａBriｔishpｏｕndtobe?＄1.9573３peｒGBP＄1.５109peｒＧＢP$0.5１0９perGBP$0.489１perGBPAnswer:(a)Qｕesｔions１4－1８refｅrtothefollowingexｃhaｎgeraｔｅtabｌｅ.Toaｎswer14－18youｗillｈavetoｆｉllｉnｔhｅmissingｅxchaｎgerａｔｅs.U．Ｓ.Dｏllａｒ（USD)Peｓｏ（MXN）Eｕro(EUR)CdnDｌr(CAＤ)U.S．Ｄollar$1Peｓo１0.398Ｅuｒo0.64２0CdnDlｒ1.0003WhatistｈeEｕｒo/Ｐesｏeｘchanｇｅｒaｔe?（i.e.,EUＲ／MXN)０.6１７42６ＥUR/MＸN0．6４1807EUR/MXN6.675５1６ＥUR/MXN16.19６262EUR／MXNAnsweｒ:(ａ)?Whａt(yī)isｔheCdnDｌｒ/Ｅuroｅxｃhangeraｔe？（i．e.,CAＤ/EUＲ）0.6４1807CAD/EＵR1．５5８０99ＣAD/EUＲ６.4２０CＡD／EUR16.196262CAD／EＵRAnｓwer：(b)ＷhatiｓtheＥuｒo／ＣdｎDlｒeｘcｈangerate？(i.e.，ＥUR／CAD)０.３583EUR／CAD0.6４1８07ＥUＲ／CAD１．５58099EUR/CAＤ1０.39４EＵＲ／CADAnsweｒ:(b)WｈaｔistheＰeso/CｄnDlreｘｃｈaｎgeｒaｔe?（ｉ.e.，MXN/CAD)0.０9620１MＸN/CAD0．６４1８０7MXN/CＡD10.394８82ＭＸN/ＣAD16．１9６２６２MXＮ/CADＡｎswer：（c)WhatisthePeso/Euroeｘｃhａngerate?(i.ｅ．,MXＮ/EＵR）0.617４2６MXN/ＥＵＲ６.675516ＭＸN/EUR1５．5811１2MXN/ＥＵＲ１6.1９62６2MXＮ/ＥURAnswer:（d）

YouａretrａvellinｇｉnFarOutｗhereｙｏucanbuｙ13０krａnｅｓ(akraｎeｂeｉngtｈeunitofcurrｅｎcｙoｆFarOｕt)wｉtｈａU.S.ｄｏllaｒａt(yī)officialFarOｕtbａnks．Youｒｔｏuｒｇｕｉｄｅhａｓareｌatｉvewhoｄabblｅsinthｅblackmarketanｄtｈisparticulａrreｌatｉvewilｌseｌｌyｏukraneｓforjust$0.008３3eａchontheｂlａckｍaｒｋeｔ.Hｏwmucｈwillyouｌoseorgainbyeｘｃhanｇｉｎg＄2０0ｏｎtｈｅbｌackmaｒkeｔinｓteadofgoｉngtothebank?yoｕwｏulｄｇａｉｎaｐｐｒoxｉｍaｔｅly１,660kｒａneｓyｏuwｏuldloseapproxｉmａt(yī)ely１,6６0ｋraneｓyｏｕwoulｄｇaiｎaｐpｒoximately1,990kranesｙoｕｗoulｄｌoseａpproximａt(yī)eｌy１,９90ｋranesＡnｓwｅｒ：(d)Iｎｅsｔｉmatiｎgthevａluｅofashａreｏfaｆirｍ?sstocｋ,ａsimplｅｍｏdelｉsto：diｖiｄeEPSbyaＰ／EmulｔiplｅmultipｌyＥPＳbyaP/EmuｌtｉpleｍulｔｉplyＥＰＳbｙＥＡＴｄivideＥPSbymａrkｅtvａｌueAｎsweｒ：（ｂ）Afirm?searniｎｇsperｓharｅａｒe$６aｎdtheindustｒyaverageP/Emultipleis９.Whａt(yī)woｕldbeanｅsｔimatｅoftheｖａlueｏｆaｓｈａｒｅofthefｉrｍ?sstocｋ?$54.０0$45．00$１.50$0．６７Answｅr:(ａ)Ｔhevaｌueoｆｔｈeassetasiｔapｐｅarｓinthefinanciaｌstatemenｔiscalｌｅdｔheａssｅt?s________.mａrｋetvaｌuefixedvaluｅbookvaｌueｅxpecteｄvalueAnsｗer:(c)?Ｃonｓｉdeｒtheｆoｌlowingsｔoｃkmaｒketrｅacｔiｏntotheinfｏrmatｉonｃonｔaineｄinacompany?ｓannounceｍｅnt.Ａｃｏrpｏｒatiｏnhaｓjuｓtａｎｎｏuｎcｅdtｈａt(yī)iｔmusｔｐｕrsuetheisｓｕancｅｏfcｏmｐanyequｉｔｙ.Weｃouｌdeｘpecttｏｓee___＿＿_(dá)__inｔｈｅpricｅｏfｃomｐanｙｓtock.aｒisｅadropaｒapidrisezeroｃhａngｅAnswer:(b)Considerwhatthesｔocｋmarketrｅaｃｔionｔotheｆoｌloｗingannoｕｎcｅｍｅntwoｕｌｄbｅ.Aｃorporationhasjustannouncedｔhatitisｅngagｉnｇinastocｋsplｉtｏfｔheｃompany?sshaｒes.Wecouｌdｅxｐecｔｔoseea___＿_(dá)__＿ｉｎtheｏverａllmarkｅｔcapｉtalizａt(yī)ｉｏnrateanda_＿＿_(dá)__＿_(dá)intheｐriｃeｏfcompanystock.rise;ｄropdｒop;ｒiseriｓe;droprise;droｐAnｓweｒ：(a)Ｔｈｅ____＿_(dá)＿_(dá)istheｐｒｏｐositionthａt(yī)ａnaｓset?scｕｒrentprｉｃefｕｌlyreｆlectsallpｕbｌiclyavａilablｅinformationaboutｆｕtｕreecoｎｏmiｃfｕndamｅｎtalsａffectiｎgthｅaｓｓet?svalue.ｐubｌicmａrketshypothesisefficientmarketsexｃhaｎｇeratesfundaｍｅnｔａlvalｕepｒｏposiｔioｎefficientmarｋetshypｏthｅsiｓAnswer：(d)Tｈemａｒkeｔpriceofanaｓsetreｆleｃtsthe______＿_(dá)ofaｌlanalysts?opiｎioｎｓｗithhｅａvierweiｇhtｓonanalystsｗhoconｔｒollargeａｍountsｏfmoneｙandｏnthoseanalyｓtswhoｈａvebetｔeｒｔｈａnaｖｅrａgeinfｏｒmａt(yī)ion.besteｓtiｍateweighｔedaｖerａgeｈiｇhestesｔiｍateｌowesｔｅstimaｔeAnswer:（b)

Assｕmｅthaｔtｈeworldwiｄerisk-freereａlｒateoｆinterestｉs4%ｐeｒyeａr.InｆlaｔｉoｎiｎＤenｍarkis9%pｅryｅarａｎdinｔheＵnｉteｄStaｔesｉtｉｓ7%ｐeｒｙear．Aｓsuｍｉｎｇthereiｓnouncertaintyaboｕtinfｌａｔion,ｗhatａreｔheiｍｐｌｉeｄnominaｌinｔerｅｓtraｔｅｓdeｎominatedinDanishkroneaｎｄｉｎU．S.dollars,respｅctively？１6．63％（DKK);1３.50%（USD)1３.5０%(ＤKK);１6.63%(UＳD)1３．３6%（ＤＫK）;11.２８%(USＤ）11．２8%（DKK);13.3６%(USD）Anｓwer：(c）The___＿_(dá)＿_(dá)_ｔheｏｒystａt(yī)eｓtｈattheexpｅcｔedrealinｔereｓｔraｔｅｏnriｓk－freｅloａnsistheｓameallｏｖertｈewｏrld．nomｉnalinteｒest-raｔeｐarityrｅalintereｓｔ-ratepａrｉtｙefficienｔｉnflatiｏnｒatepaｒityefficienｔmarｋetｒateAnsweｒ:（ｂ）___＿_(dá)___ｓｔateｓthaｔｅxchangeｒａt(yī)esadjｕstsoastomａintaintｈeｓamｅ?rｅal?priceofa?represenｔative?baskeｔofｇoｏｄｓandservicesarouｎdtheworld.PｕｒｃhasｉngpowerpariｔyＥfｆｉciｅntｍarketshypotｈｅsiｓMａｒketｖaluａt(yī)ionmodeｌＥｘcｈａngerａｔeequityAnswer:(a)Assumetｈａt(yī)thｅｗｏrldｗiderisk－frｅe(cuò)rｅaｌrateofiｎteｒeｓtiｓ５%perｙeaｒ.IｎfｌationiｎA(yù)ustraｌiaiｓ9%ｐerｙeａranｄinGreaｔBrｉtaｉniｔｉs１2%peryｅar.Ａｓsｕmingtheｒeｉsｎoｕncertaintyaboutｉnfｌaｔｉon，ｗhａt(yī)ａretheimpliednoｍinalintｅresｔratesｄｅnominａt(yī)ｅdｉnAｕstraliandｏｌlarsａndGreatＢritaiｎpounｄs，ｒespecｔiｖｅly?22.08％(AUD),11.45%(GBP)?1１.４5%(AUD）,22.08%（GＢP)1７.60%(AUD),14.４5%(GBP)14．４5％（AUD),1７．60%(GBP)Answer:(d)

ShortProｂlemsＳuppｏｓeyｏuｈave$20,０00ｉnabａｎkaccounｔearninganiｎteresｔratｅｏf4%pｅryear.Aｔｔhｅｓａmeｔｉmｅyouhavｅａnunｐaidbalanceonyoｕrｃreｄitｃａrdｏf＄7,０0０onwｈichyouａｒepａｙiｎganｉnｔeｒestｒateoｆ18%peryeａｒ．Whatiｓtheａrbｉｔrageｏｐｐortunｉｔyyｏｕfaｃe?Answer：Yｏｕcouldtake$7,0００outoｆｙourｂａnkaccountaｎdｐaydｏｗｎyourcreditcardbａlanｃe.Youwouｌdｇｉｖeup4%ｐerｙeaｒiniｎｔereｓtearniｎgs(＄２80)butyouwouldsaｖe18%peｒｙｅarininｔereｓtｅxpeｎses（$1,２60).Sｏtｈeaｒbｉtrａｇeoｐｐｏrtuｎiｔyiswoｒｔh＄9８0ｐeryeaｒ.Fillinthｅmissiｎgexchangeratｅsｉnｔhｅfolｌｏwingtable: Ｕ.S．DｏllａrＥｕrｏDａnishKroneJapaｎeseYenU．S.Ｄｏllaｒ＄11．５5７60．208８0.0095９4Eｕｒo０．6４20DaｎishKｒone4.７898JaｐａnｅsｅYeｎ１04．2３Ａｎｓｗer：U.Ｓ.DｏllａrＥｕroDａｎiｓhKroneJapaｎeseＹenU．S.Dollａr$１1.55760．２0880.0095９4Eｕｒo0.６4２0１Eｕro0.１3４00.006159DａniｓｈＫrone４.78987.4607４1Kｒonｅ0.４5954JａpaneｓeYeｎ104.231６2.3521.76１Ｙen1Yｏｕobsｅｒｖeｔhａt(yī)ｔhedollａrpriceｏｆtｈeMexicanpｅsoiｓ$０.09618andｔhedｏllａrprｉceoftｈeCanａdiandollａｒis$０.9９9７．WｈatｍustｔheｅxｃhangｅraｔｅbｅtweentheMexｉcａnpesoａndtheCanadianｄollarｂefortheｒetobeｎoarｂｉtｒageｏpportｕnitｙ?Aｎswｅr: ＣＡＤ／MXN=0.0９6180.999７=0.0９６20８ＣAＤ/MXNSupｐoseｔhattheｅxchaｎｇerａｔｅis$０.297０toｔｈeIsraelisｈekel.Howｃouldyouｍaｋearbitraｇeprofitswiｔｈ＄1０，00０iｆtｈeｄｏｌlarpｒiceｏｆgoldiｓ$2０0perounceａndｔheshｅkｅlｐrｉcｅis750IＬSpｅroｕnce?Anｓwer：Take$10,０00aｎdｂuy５０oｕｎcesｏfgoldat$200perｏｕnｃe.Selｌ５0ouncesｏｆgolｄinIsrａeｌfor37,500ＩLS(750IＬSperｏunｃe).Tａke３7，500ILSanｄｅxchanｇeitiｎtodollaｒsworth$1１，137.５0.Tｈeaｒｂｉｔrａｇeprｏｆitis＄1,137.５0．YoｕaｒｅtｒaｖeｌliｎｇinFaｒOutwｈeｒeyoｕcanｂuy15０kｒaｎeｓ（akｒaｎebeingｔｈｅｕnitofｃｕrrencyinFarOｕt）ｗithaU.S.dollarａt(yī)offiｃialＦａｒOutbankｓ．Yourtourgｕｉdehasarｅlａt(yī)ivewｈoｄabｂｌesintｈeblackmａｒketａndtｈiｓｐaｒｔicularreｌaｔiｖewillsｅlｌyｏuｋranesforjust$0.0０６85eachontheblackｍａrket.Ｈｏwｍｕchwoｕｌdyｏuｇａiｎｏrｌosebyｅｘchanging$300ontheblaｃｋmarｋｅtiｎsｔeaｄofgoｉngtothｅbaｎk?Ansｗer:Ontheｏfficｉalmarkｅt:$３00x150kraneｓ＝45,000kｒａnｅｓOｎtｈeｂlaｃｋｍarkeｔ:$300x1/０．006８5kraｎes=４3,796kraｎesＨence,yoｕwｏuldlｏse1,204ｋｒaｎes.Afirｍ?ｓeａｒnｉngspｅrｓｈareaｒe＄5.50aｎdthｅindusｔrｙavｅrageＰ/Eｍultｉpleiｓ8.Whａt(yī)woulｄbｅanｅstimateofthｅvａluｅofasharｅoftｈeｆirm?ｓstocｋ?Isitpossiblefｏrfirmｓbeｉnｇclａssｉfiedｉnｔhｅｓamｅiｎｄｕｓtrｙtohａｖediffｅｒeｎtｐｒｉce/eａrningsmultiｐｌes?Answｅｒ： Eｓtiｍatｅdvaluｅｓhａreoｆsｔock?=ｆiｒm?sEPSｘIndustrｙａveｒageP/E ＝$5.50x8 ?? =$44.00 FirmｓｃlassifieｄasbeｉngintheｓａｍeindｕｓtrymayhavediffereｎtopportunitieｓfｏrｇｒｏwｔｈiｎtheｆutｕreａｎdmaythｅｒeforedｉfｆerｉntheirP／Emｕltiplｅs.TｈeP/ＥｍultiｐｌｅofBＨMCoｒporatioｎｉｓｃurreｎtly5，whilethｅＰ/EraｔｉoofｔhｅS&P500is１0.Whatｒｅasoｎscｏulｄａccｏuntfｏrtｈisdiｆｆｅｒence？Anｓwer： BHM?sｒeｐortｅdｅarnｉngsmａybｅhｉｇherthantheyaｒeeｘpecteｄｔobeiｎthefｕture,oｒtheymaybeｉnflateｄdｕetospeciａlacｃountingｍetｈｏdsuseｄbyＢＨM．BHMmａyberiskiｅrthanthｅＳ＆P５００eiｔheｒbｅcauseｉtiｓinａrelatｉｖｅlyrｉskｙinduｓｔｒyorhａsaｒelativelｙhｉｇherｄebtｒatｉｏ．ThepｒiｃeofHubriｓＣo.stockrecentlyｊumpedwhenｔheＣEOforthecoｍpaｎｙaｎnouncedanincｒeａsｅddiｖidendpaymeｎtfｏrtheyear.Whａt(yī)miｇｈtaccountfｏrsｕchamａrketreａctｉｏn?Ａnsｗer：Theｍarｋｅtmａybelievｅthｅcomｐaｎy?sfutｕrepｒospectslookverybriｇhｔ(ｔhatis,ｈｉghｅreaｒｎｉngs，ｌｅｓsrｉsk,sｏunｄgｒowth,etｃ.)ａndｔhattheｃompaｎycａnsustａｉnｓuchａnｅａrniｎgｓgｒowth．?Aｓsumｅthatｔheｗorｌdwiｄerisk-fｒeerｅalratｅofinteｒesｔｉs4％pｅryear.Dｅnmarkhasanexｐectedrａt(yī)eoｆｉnflaｔiｏnof9%pｅrｙearａndinSpａinhａsanｅxpectedraｔeofinｆlatｉｏnof14%peryear.Aｓsumｉｎgtｈｅrｅｉsnｏｕncertaintyabouｔinflatioｎ,whatarethｅｉｍplｉednｏmｉｎalinｔerestrａｔesdｅnoｍｉnａｔediｎＫroｎeｒandEｕros?Aｎsweｒ:?Dｅｎmａｒｋ:nominaliｎtｅrｅstrate=(１．04）x(1．09)?１? ? =13.３6%peｒyear Spａｉn:nominaｌiｎteｒestrate?=(１.04)x（1.１4)?1 ? ??=18.56％perｙearＡsｓuｍethａt(yī)thewｏrldｗiderisk-freeｒealraｔｅofinteｒesｔｉｓ4％ｐeryear.ThｅUnitedKｉngｄomhasaneｘｐectedrａt(yī)eｏfinｆlａｔionof8％peryｅａrａnｄinBeｌｇiumitiｓ１0%ｐeryeａr.Assｕmｉngtｈeｒeiｓnｏｕnｃerｔaiｎｔyaboutinflaｔiｏｎ,wｈaｔarｅtheimｐliｅdｎominalinterestratesdenominaｔedinPｏｕndｓSteｒlinｇanｄEuros？Answer：?UｎｉｔedKiｎｇｄoｍ:nｏmiｎaliｎteresｔrate?=（１．04)x（1．08）?1 ? ??=１2.32%peryear Beｌgium:nomiｎaliｎtｅrestｒate ?=（1.04)ｘ（1.1０）?1?? =14.40%peryeaｒ

LoｎｇeｒPｒoblｅmsLｅt?sａssumetｈatyouhavｅoperatedyｏｕroｗｎｂuｓinessfor18ｙears.Foｒthemoｓtｒeｃentfｉscalyeaｒ，sａｌeswｅre$１５ｍｉllion．NetＩnｃｏmｅｆorthemoｓtｒeｃentfiscalｙearwaｓ$1.5milliｏｎ.Thｅbookvalｕeｏfyｏurbusineｓswaｓ$1１miｌlｉｏn.Recently,ａfiｒmｗhicｈisengageｄinsimilaractiｖiｔｉｅsｔoｙｏurｏwｎwａsｓoldaｎdｔhefolloｗinginforｍatiｏnｗａsmａdepubliｃ：MultｉpｌeofBoｏｋVａｌue 0.8xMulｔiｐｌeofNeｔIｎcoｍe 1１ｘMｕltiｐleofSalｅｓ?０．7ｘHowwouldｙｏudｅterｍineａnapproprｉateranｇeofvalueforｙｏurcompany?Itｈａsｃｏmeｔoyouratｔeｎｔionthatyouｒcomｐａnyｈasfutureiｎvestmｅntoppｏrtｕnitiesthaｔwouldbelｅｓsｐrｏfitａbleｔhanｔhecｏｍｐetingｃｏmpaｎｙａbovｅ.Whatｄoesｔhissaｙaboutthｅｖaluatiｏnofyourcompany?Answeｒ:a)?MｕｌtipleｏfＳａles:０.7x＝$15miｌliｏｎｘ0．7＝＄10.５ｍｉlｌion ＭｕｌtｉｐleofＮｅtＩｎcｏme:1１ｘ=$1.５milliｏnx１1=＄１6.５mｉllioｎ? ＭultipleofBookVａlue:0．８x=＄11milliｏnx0.8＝$8．８millｉonb)?Tｈｅvalｕatioｎoｆyouｒｃompaｎywouldbeatthｅlｏwereｎｄｏｆtherange.BHMｓtocｋisｔradingfｏr＄47persｈａreontheNYＳＥand$45pershareonｔheＳydnｅyStockExcｈaｎge．ＡssumethatthｅｃostsofbuyingaｎｄsellingＢＨMsｔockａreｎegligｉble.Ｈｏwcanyｏumaｋeａnarｂitragｅpｒｏｆiｔ?OvertimｅwhatwouｌdｙoｕexpｅcｔｔoｈａpｐeｎｔostockprｉcｅsiｎＮewYorkaｎｄＳydneｙ?NowａssumethatthｅcosｔofbuyｉnｇaｎｄseｌlingshａresｏfBHMare2%perｔrａnsaction.Ｈowｄoeｓthisaffｅｃtyoｕrａnswers?Answer:ａ)?YoucoｕｌdbuyＢHMstoｃkｉnSydneyaｎｄsimｕltａｎeouslｙselｌitｉｎＮｅwYoｒｋ．Yourarbitｒａｇeproｆｉｔwｏuldｂe$2perｓhaｒe.Thepriｃeswｏuldbecｏｍeｅqual.Tｈereｃoｕldｒｅmａina2%discrｅｐａncybetweｅnｔhepricｅswhiｃhwｏuldｂe$１.84intｈｉsｉnstance．

Ｓｕppoｓeyouhave$50,０00ｉnａbanｋａccounｔearninｇaniｎterｅstｒateoｆ3.5％pｅrｙear.Atｔheｓametimeyouhaveａnuｎpaｉｄbalanｃｅｏnyouｒcｒｅditｃardoｆ$13,0０0onｗhｉｃｈyouaｒｅｐａｙinganinｔｅrｅstrateoｆ2１％peryｅar．Ｗhatiｓthearbitrageｏｐpoｒtuniｔyｙoｕfａce?Ａｎswer：Yoｕcｏｕlｄtａkｅ$13,000oｕtofｙｏｕrbankacｃouｎｔaｎdpaydownyouｒcreditcarｄｂａlａnce.Yｏｕwｏｕlｄｇiveuｐ3.5%peryearｉｎinｔｅresteaｒnings($45５)butyouwｏulｄsaｖｅ２1％pｅryeａrininｔｅrestexpenses($2，7３0）．Sｏtｈeａｒｂitｒaｇeｏpｐortunｉｔyiswortｈ＄2，27５peryｅar.ThequｏtesfromHuｂriｓBanｋandModeｓtyBaｎkarｅgivenbeｌow:ＨubrｉsBank:?１06Yeｎ／＄ModestｙBaｎk：?１04Yen/$Answｅrthefollowingqｕesｔionsbaｓedonthesｅfｉgｕrｅs.Iｆwｅａssｕmeｎｏtraｎsactioncostｓ,tｈeｒeisevidenｔlｙａnopｐｏｒtuｎityfｏrarｂｉtrageherｅ．Ｉfanａｒｂｉtrageurｓtarteｄｗith$１０,00０,exactｌyhowwould(ｓ)heｍａkeｐrofitsａndhoｗmuchｐrｏfitｗouｌd(s)ｈemａke?Ａsmanｙtｒaｄerｓｅnｇａgeinarbｉtｒagewhｏdoyoｕexpeｃttoｓeeinthｅａboｖequotesatｔhesｅtｗobaｎks?Iftheｒeiｓa1％ｔransａｃｔioncosｔfortransactionsistheｒestillanｏpｐorｔuniｔyｆoｒａｒbｉｔraｇｅ？Aｎsweｒ：HubrｉsＢａｎk:106Ｙen/$? MｏdestyBａnk:１04Yｅn／$AtＨubｒiｓBａnｋ,buyＹenwiｔｈｄoｌlａrs（Yenarecｈeapｅr).AtModestyＢank,buydollarｓｗithYeｎ(doｌlａｒｓarecｈeaper)． Staｒｔｗith＄１０，000:? AtHubrｉｓBank:$10,000x１０６Yen/＄=1，060，０00Yeｎ?AｔＭodestｙＢaｎk:1,0６0,000Yenｘ1$/１04Ｙｅn＝$10，192.31 Youｍakeａprofｉｔof$１９2．31.TｈeYeｎwillａｐpr