Solution Library


Finance Objective Questions - Company's Real Activities and is Cost of Detb better than Cost of Equity

Question 1. Which of the following liabilities form part of a company's "real" activities?  Short-term debt Accounts payable Accrued operating expenses Long-term debt III only II and III I and IV I only 2. The cost of debt is generally lower than the cost of equity. True or False S ... Read More

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Finance Objective Questions - Company Value and Capital Structure and Leverage and Managerial Discretion

Question 1. M&M's Proposition I states that a company's value depends on its capital structure. True or False 2. A higher level of leverage generally reduces managerial discretion. True or False Summary These two objective questions belong to Finance and the first question is about company ... Read More

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Problem: Speculator Investing in Japanese Yen Call Options

Question A speculator is considering the purchase of five three-month Japanese yen call options with a striking price of 96 cents per 100 yen. The premium is 1.35 cents per 100 yen. The spot price is 95.28 cents per 100 yen and the 90 day forward rate is 95.71 cents. The speculator believes the yen ... Read More

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Hedging a Bond Portfolio with T-Bond futures

Question A portfolio manager uses a T-bond futures contract to hedge a bond portfolio over the next 4 months. The portfolio is worth $75 million and will have duration of 5 years in four months. The futures price is 118 and each contract is for $200,000. There are three bonds that can be delivered ... Read More

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Determining Futures Prices with Bonds maturing at different times and with different coupon rates

Question The futures price for the June 17, 2009 CBOT bond futures contract is 118-23. 1.    Calculate the conversion factor for a bond maturing on Jan 1, 2025, paying a coupon rate of 9.5%. 2.    Calculate the conversion factor for a bond maturing on Oct 1, 2030, pay ... Read More

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Calculation of Interest Rate Swap in return for LIBOR

Question Under the terms of an interest rate swap, a financial institution has agreed to pay 10% per annum and to receive the 3-month LIBOR in return on a notional principal of $50 million with payments exchanged every 3 months. The swap has a remaining life of 14 months. The current rate being swa ... Read More

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Is foreign exchange risk systematic? What are the implications of corporate hedging policy with respect to foreign exchange risk?

Question Is foreign exchange risk systematic? What are the implications of your answer regarding corporate hedging policy with respect to foreign exchange risk? In your answers make sure to discuss the possibility of divergent views on this issue between management and shareholders.    S ... Read More

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Do you think investors should try to diversify their domestic investment portfolios by including international assets in it?

Question Do you think investors should try to diversify their domestic investment portfolios by including international assets in it? Why/why not? What is the best way to achieve the benefits (if any) of international portfolio diversification without bearing the associated costs?    ... Read More

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Financial Manager Assessing political risk in project in foreign country

Question Explain how a financial manager should account for political risk when considering a project in a foreign country. Assume that the financial manager works for a multinational firm with presence in many different countries. Summary The question belongs to Finance and it is about the influ ... Read More

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Calculate Unit Price of Product and NPV for a New Project

Question HGK, a Thai firm, is considering starting production of high-def TVs in its U.S subsidiary for sale in the U.S. The project has a 4-year life and requires an initial investment of $6,000,000 in equipment. The equipment is to be depreciated (to zero) on a straight line basis and is expected ... Read More

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Choosing an investment strategy by calculating the cash inflows

Question Faulpeltz Gmbh is a German subsidiary of Lazy Ltd., a British MNC. Faulpeltz is considering a 5-year project in Germany that requires an initial investment of 1,360 million Euros (EU). The project will generate cash flows of EU 450 million per year in the years 1 to 4 and EU 575 million at ... Read More

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Calculating the Present Value of Shares and Currency

Question At the end of 2011 you bought 25000 shares of a Mexican stock at a price of 220 peso/share. At that time the spot exchange rate was 0.2458$/peso. Nine months later, you sold these shares for 240.5 peso/share.  If your annualized US-$ rate of return on that investment was 21.5%, what w ... Read More

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