solution to Walter's approach and Foreign exchange quote

srinivas (humble devotee of saraswati)   (885 Points)

08 November 2008  

 

  1. (a) Walter’s Approach:
 
A company has a book value per share of Rs. 150. Its return on equity is 15% and it follows a policy of retaining 60% of its earnings. If the opportunity cost of capital is 18%, what is the price of the share today. According to Walter’s approach.
 
 
(a)    Foreign Exchange:
The price of the pound sterling was quoted at $1.80 in New York and on the same date the DM spot rate was quoted at $.40.
·        What would you expect the price of the pound to be in Germany?
·        If the pound qas quoted in Frankfurt at DM 4.40/pound, what would you do to profit from the situation?
 
please send your answers to psrinivas1 @ in.com