1. Today, you are buying a one-year call on Piper Sons stock with a strike price of $27.50 per share and a one-year risk-free asset that pays 4 percent interest. The cost of the call is $1.06 per share and the amount invested in the risk-free asset is $26.44. What is the maximum potential loss per share on these investments at the end of one year?
$.10 loss
$.85 loss
$0
$1.20 loss
$1.27 loss
2. The current exchange rate is USD/NZD/USD is 0.7001
The 90 day US T-Bill rate is 0.83% and the 2 yr. Treasury note rate is 1.24%
The New Zealand 90 day rate is 1.98% and the 2 yr. rate is 2.12%.
Using the International Fisher Effect forecast the CHF/US exchange rate:
a. 3 months from now; and
b. 2 years from now.