1. The inflation rate in U.S. is 3%, and the inflation rate in Japan is 9.5%. The current exchange rate is 90 JPY/USD. If the purchasing power parity holds, what should be the new JPY/USD exchange rate at the end of the year? Note that an indirect exchange rate is provided.
2. You are considering a project that promises you cash flows of 505 USD each year for 4 years. Based on the riskiness of the project, you require a 12 percent return. What is the maximum you should be willing to pay?
3. You buy a put option on a stock for a premium of $4.88. The current stock price is $58, and the option strike price is $47. What is your break-even stock price?