Stock in daimler ag, the famous german automobile manufacturer, trades on both the frankfurt stock exchange in germany and on the new york stock exchange. on the börse frankfurt, daimler closed at a price of €54.34 on wednesday, march 5, 2008. on the same day, daimler closed in new york at $83.55 per share. to prevent arbitrage trading between the two exchanges, the shares should trade at the same price when adjusted for the exchange rate. the $/€ exchange rate on march 5 was $1.5203/€1.00. thus, €54.34 × $1.5203/€ = $82.61, while the closing price in new york was $83.55. the difference is easily explainable by the fact that:
a. transactions costs exceeded the price difference, so no arbitrage was possible even for market makers.
b. no one noticed the arbitrage that day, but in a day or so the opening price will adjust.
c. the new york market closes several hours after the frankfurt exchange, and thus market prices or exchange rates had changed slightly.
d. none of the above

Astock with a beta of 0.6 has an expected rate of return of 13%. if the market return this year turns out to be 10 percentage points below expectations, what is your best guess as to the rate of return on the stock? (do not round intermediate calculations. enter your answer as a percent rounded to 1 decimal place.)

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.)

Two assets have the following expected returns and standard deviations when the risk-free rate is 5%: asset a e(ra) = 18.5% σa = 20% asset b e(rb) = 15% σb = 27% an investor with a risk aversion of a = 3 would find that on a risk-return basis. a. only asset a is acceptable b. only asset b is acceptable c. neither asset a nor asset b is acceptable d. both asset a and asset b are acceptable