Essay on Principle of Finance

Words: 2980
Pages: 12
Open Document
1
PART A
MULTIPLE CHOICE: ANSWER ALL QUESTIONS
Answer all questions. Write in your answer book the number of the question and ONE letter.
Question 1
Consider a bond with a 10% coupon and with yield to maturity = 8%. If the bond’s yield to maturity remains constant, then in 1 year the bond’s price will be:
a. Higher
b. Lower
c. Unchanged
d. Cannot answer based on given information
Question 2
The yield to maturity on a bond is:
a. Below the coupon rate when the bond sells at a discount, and above the coupon rate when the bond sells at a premium.
b. The discount rate that will set the present value of the payments equal to the bond price.
c. The current yield plus the average annual capital gain rate.
d. Based on the …show more content…
(i) a 3-month T-bill selling at $97,645 with par value $100,000, or (ii) a coupon-paying bond selling at par and paying a 10% coupon semiannually. [5 MARKS]
Question 13
(a)
Suppose the rate of return on short-term government securities (perceived to be risk-free) is about
5%. Suppose also that the expected rate of return required by the market for a portfolio with a beta of 1 is 12%. According to the capital asset pricing model:
(i). What is the expected rate of return on the market portfolio?
(ii). What would be the expected rate of return on a stock with β = 0?
(iii). Suppose you consider buying a share of stock at $40. The stock is expected to pay $3 dividends next year and you expect it to sell then for $41. The stock risk has been evaluated at β
= -.5. Is the stock overpriced or underpriced?
[15 MARKS]
(b)
B&K Enterprises will pay an annual dividend of $2.08 a share on its common stock next year.
Last week, the company paid a dividend of $2.00 a share. The company adheres to a constant rate of growth dividend policy. What will one share of B&K common stock be worth ten years from now if the applicable discount rate is 8%?
[5 MARKS]
(c)
Consider a bond with a coupon rate of 10%. Coupons are paid semi-annually and the bond will expire in 3 years.
6
(i) Find the bond’s price today and 6 months from now after the
Show More

Related Documents: Essay on Principle of Finance

Principle of Islamic Finance Essay

GlobalNote TM special focus report winter 1998-1999 a publication of the financial services capital markets group of tannenbaum helpern syracuse & hirschtritt llp Principles of Islamic Finance Consider for a moment about operating and practicing law in a jurisdiction and under a financial system where there is no separation between church and state. Most if not all of us operate in a western oriented system where the banking and financial systems operate laissez-faire, with minimal…

Words 3367 - Pages 14

principle of corporate finance solution Essay

CHAPTER 2 How to Calculate Present Values Answers to Problem Sets 1. If the discount factor is .507, then .507*1.126 = $1 2. 125/139 = .899 3. PV = 374/(1.09)9 = 172.20 4. PV = 432/1.15 + 137/(1.152) + 797/(1.153) = 376 + 104 + 524 = $1,003 5. FV = 100*1.158 = $305.90 6. NPV = -1,548 + 138/.09 = -14.67 (cost today plus the present value of the perpetuity) 7. PV = 4/(.14-.04) = $40 8. a. PV = 1/.10 = $10 b. Since the perpetuity…

Words 1401 - Pages 6

Finance: Generally Accepted Accounting Principles and Debits Credits Cash Essay

Accounting 301 Intermediate Accounting I Adjusting Entries Review Handout Professor Mitschow The trial balance of Garcia’s Irish Pub (formerly a real place) at the end of the year on 12/31/02 is provided below. Debits Credits Cash $127,760 Accounts Receivable 11,120 Supplies 24,000 Equipment 63,600 Accounts Payable 26,480 Note Payable 20,000 Unearned Rent 7,200 Common Stock 80,000 Retained Earnings 100,800 Dividends 56,000 Commission Revenue 252,400 Rent Revenue…

Words 321 - Pages 2

Corporate Finance 9th Edition Mini Case Solutions Essay

Ebook Corporate Finance 9th Edition Mini Case Solutions PDF at Online Ebook Library CORPORATE FINANCE 9TH EDITION MINI CASE SOLUTIONS PDF Download: CORPORATE FINANCE 9TH EDITION MINI CASE SOLUTIONS PDF Are you seeking Ebook CORPORATE FINANCE 9TH EDITION MINI CASE SOLUTIONS PDF?. Acquiring Ebook Corporate Finance 9th Edition Mini Case Solutions PDF is easy as well as easy. Mostly you have to spend much time to browse on search engine and also does not get Ebook Corporate Finance 9th Edition Mini…

Words 1607 - Pages 7

Essay on Finance: Efficient-market Hypothesis and Form Efficiency

ECF5220 Principles of Finance – Note 12 18/10/2011 Objectives Successful completion of this week’s work should enable you to: Identify the information levels of the Efficient Market Hypothesis (EMH) Describe the methods used to test the different levels of the EMH Assess the implications of the EMH for investors and financial managers Discuss the reasons for the development of behavioural finance Understand the relative merits of the traditional and behavioural arguments 1 2 Efficient Market Hypothesis (EMH)…

Words 1659 - Pages 7

Guillermo Furniture Store: Applying Financial Concepts

Running head: Financial Principles The Guillermo Furniture Store: Applying Financial Concepts Patricia Dueñas University of Phoenix FIN571 The Guillermo Furniture Store: Applying Financial Concepts This paper will elaborate on key finance concepts and how they apply to Guillermo Furniture Store scenario. It will show how these principles can assist the company in the important decision-making process. The Guillermo Furniture Store: Applying Financial Concepts Guillermo Furniture Store…

Words 789 - Pages 4

Essay about Financial Management of Health Care Organizations

aware of the decisive elements of management and the generally accepted accounting principles. At the same time, they must realize, stick to, and put into effect the general financial ethical standards. Successful management of finances of healthcare is one of countless tests that mug the organization. Revenues and expenses of the organization are essential because they establish the external and internal finances of the company. The…

Words 1329 - Pages 6

Bpp Learning Media Essay

Time allocation is also important between the different parts of the questions to ensure you do not over­run. BPP LEARNING MEDIA Chapter 2 Professional and ethical duty of the accountant • Summary/overview • Ethical principles in corporate reporting • Complying with ethical principles • Framework for decisions • Moral philosophy and theory in ethics • Ethical theories • Ethics in organisations • Managing ethics within organisations • Non­financial reporting standards BPP LEARNING MEDIA Syllabus learning outcomes…

Words 2107 - Pages 9

intermediate accounting 2 test bank Essay

tising and Promotion An Integrated Marketing Communications Perspective Belch 8 Advertising Principles And Practice Wells 7 Advertising Promotion and Other Aspects of Integrated Marketing Communications Shimp 8 Aging and The Life Course An Introduction to Social Gerontology Quadagno 4 Alternative Dispute Resolution A Conflict Diagnosis Approach…

Words 8328 - Pages 34

Planning and implanting Essay

Planning and implanting 1. Explain how each of the above points can influence the financial needs of a business. First of all the size of the business, is a crucial impact to the state of the financial side of the business. A small business, would obviously mean less costs , whereas a huge business would mean more due to the size. Future plans for growth and development , strongly contribute to the financial needs of a business as to grow you need to expand and in order to expand you need to spend…

Words 715 - Pages 3