Question 3 (20 points) Suppose the Swiss Franc is currently traded at CHF 0.85/$. The British Pound is traded at GBP 0.77/$. Ignoring transaction costs: a. Determine the CHF/GBP exchange rate consistent with these direct quotations. b. Suppose the CHF/GBP cross rate in the market was at CHF 1.04/GBP. Is there any arbitrage opportunity? Question 4 (30 points) Consider the following three stocks: Stock A is expected to provide a dividend of $40 a share forever Stock B is expected to pay a dividend of $8 next year. Thereafter, dividend growth is expected to be 2% a year forever. Stock C is expected to pay a dividend of $15 next year. Thereafter, dividend growth is expected to be 12% a year for 4 years (until year 5) and zero thereafter. a. If the market capitalization rate for each stock is 8%, which stock is the most valuable? b. What happens if the capitalization rate drops to 6%? Explain C. Assume EPS for stock A is 4, Stock B 9, and Stock C 15. Calculate the P/E ratio for each. Briefly explain what the different values mean to you. Question 5 (10 points) Word limit: 800 words. Imagine that you have 100 000 EUR for medium-term investments. Which asset classes you would choose? (Specify share of each asset class). How would you manage the risk of your investment pratfolio? (Be concrete) Would you pick some individual securities or would you invest in broad market portfolios? Why? If you decided to invest in some individual securities, explain how would you choose securities to your portfolio