1. The following quotes present an arbitrage opportunity.
Bank A: $1.20=1 euro
Bank B: 1.10euro=1 british pound
Bank C: $1.25=1 britishs pound
What is the arbitrage profit in terms of a percentage?
2. Shanken Corp. issued a 30-year, 8 percent semiannual bond 3 years ago. The bond currently sells for 93 percent of its face value. The company's tax rate is 35 percent.
a. What is the pretax cost of debt?
b. What is the aftertax cost of debt?