Explain how to analyze capital investment decisions for health care organizations.
1. A fund that is all invested in U.S. equities seeks exposure to foreign equity markets. Which of the following is the most appropriate approach for the fund to take? (MSCI World is an index that tracks the performance of equity markets in 24 countries.)
A. Enter into an equity swap to pay the return on the S&P 500 and receive the return on the MSCI World index.
B. Enter into an equity swap to receive the return on the S&P 500 and pay the return on the MSCI World index.
C. Go short forward contracts on the MSCI World index.
D. Enter into forward exchange contracts to sell the dollar and buy euros.
2. The price of oil is $80 (spot), $85 (one-year forward), and $90 (two-year forward). Convenience yields and other costs and benefits of storing oil are zero. What is the price of a two-year annual-pay oil commodity swap?
A. 82.50 B. 85.00 C. 87.43 D. 90.00