# Finance

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Solution Library **

#### Risk Management and Insurance Application for a Bus Company

QuestionCity Bus Corporation provides school bus transportation to public schools in Lancaster County. City Bus owns 50 buses that are garaged in three different cities within the county. The firm faces competition from two larger bus companies that operate in the same area. Public school boards gen ... Read More

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#### Risk Assessment For a Railroad Company

QuestionGreat West States (GWS) is a railroad company operating in the Western United States. Juanita Salazar is risk manager of GWS. At the direction of the company's chief executive officer, she is searching for ways to handle the company's risks in a more economical way. The CEO stressed that Jua ... Read More

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#### Objectives of a Subsidiary Insurance Company

QuestionCommercial Insurance is a large stock property and liability insurer that specializes in the writing of commercial lines of insurance. The board of directors has appointed a committee to determine the feasibility of forming a new subsidiary insurer that would sell only personal lines of insu ... Read More

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#### Reinsurance Plans for Various Business Situations

QuestionReinsurance can be used by an insurer to solve several problems. Assume you are an insurance consultant who is asked to give recommendations concerning the type of reinsurance plan or arrangement to use. For each of the following situations, indicate the type of reinsurance plan or arrangeme ... Read More

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#### Calculation Of Loan Repayment At Beginning And End Of Each Year

Question Suppose you take out a loan of $10,000, repayable by five equal annual installments. The interest rate is 10% per year. (a) How much do you need to repay per year to the nearest cent if payments are due: (i) at the beginning of each year (ii) at the end of each year? (b) Which loan in p ... Read More

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#### Calculation Of Present Value Of An Investment

Question Suppose $1000 is invested at the end of each year in perpetuity. The interest rate is 8% per year. (a) Calculate the present value (PV) of the investment to the nearest cent after: (i) 1 year (ii) 10 years (iii) 50 years (iv) 100 years. (b) Do the present values calculated in (a) appear ... Read More

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#### Calculation Of Expected Return And Risk On An Investment

Question Consider a share investment which has four possible returns: -5%, -2%, 5%, 10%. The probability of each of these returns occurring is respectively: 0.4, 0.1, 0.2, 0.3. (a) What is the expected return for the investment? (b) What is the risk of the investment to 2 decimal places? ... Read More

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#### Calculation Of Expected Return And Market Premium For A Listed Company

Question The rate of return for an Australian Commonwealth Government Treasury Bond is given as 4% per annum. The yearly return for the Australian share market is given as 12%. Suppose a listed company has a beta value of 0.5. (a) Calculate the market premium. (b) Calculate the investor’s r ... Read More

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#### Use Of All Ordinances Index For Estimating Return In Australian Share Market

Question The rate of return for an Australian Commonwealth Government Treasury Bond is given as 4% per annum. The yearly return for the Australian share market is given as 12%. Suppose a listed company has a beta value of 0.5. (a) Explain how the All Ordinaries Index can be used to estimate the ma ... Read More

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#### Explain Why SAFA Bonds Are Risk Free

Question The rate of return for an Australian Commonwealth Government Treasury Bond is given as 4% per annum. The yearly return for the Australian share market is given as 12%. Suppose a listed company has a beta value of 0.5. (a) The Government of South Australia issues State Government Treasury ... Read More

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#### Calculate Price Of Bond With Coupon Interest Rate Given

Question Consider a bond with a par value of $1,000 that will mature in 10 years. You are given that the investors’ required rate of return is 5% per annum. (a) Calculate the price of the bond to the nearest cent if the coupon interest rate is 6% per annum, paid annually. (b) Calculate the ... Read More

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#### Calculate Intrinsic Price Of Share

Question The dividend payments for a listed company are expected to grow at 2% per year. The current dividend is $1 per share. Suppose the investors’ required rate of return is 5% per annum. (a) Calculate the intrinsic price of the share. (b) If the market price is $35 per share, would you ... Read More

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