1. Consider a convertible bond that is trading at a conversion premium of 20 percent. If the value of the underlying stock rises by 25 percent, the value of the bond will: A. rise by less than 25%. B. rise by 25%. C. rise by more than 25%. D. remain unchanged. Correct answer: A The convertible bond implicitly gives bondholders a call option on the underlying stock. The delta of this option will vary between 0 (when the option is extremely out of the money) and 1 (when the option is extremely in the money). In this case, the bond is trading at a conversion premium of 20% so the delta must be somewhere between zero and one, and hence the price of the convertible bond will rise by less than the price of the underlying stock. 2. If a cash flow of $10,000 in two years' time has a PV of $8,455, the annual percentage rate, assuming continuous compounding is CLOSEST to: A. 8.13%. B. 8.39%. C. 8.75%. D. 8.95%. Correct answer: B Continuously compounded rate = ln(FV/PV)/N = ln(10000 / 8455) / 2 = 8.39%. 3. The current values of a firm's assets and liabilities are 200 million and 160 million respectively. If the asset values are expected to grow by 40 million and liability values by 30 million within a year and if the annual standard deviation of these values is 50 million, the distance from default in the KMV model would be closest to: A. 0.8 standard deviations. B. 1.0 standard deviations. C. 1.2 standard deviations. D. Cannot not be determined. Correct answer: B Distance from default = (Expected value of assets - Expected value of liabilities) / Standard deviation = (240 - 190)/50 = 1.0. 4. What is the semiannual-pay bond equivalent yield on an annual-pay bond with a yield to maturity of 12.51 percent? A. 12.00%. B. 11.49%. C. 12.51%. D. 12.14%.

Correct answer: D: The semiannual-pay bond equivalent yield of an annual-pay bond = 2 * [(1 + yield to maturity on the annual-pay bond)0.5 -1] = 12.14%.

5. You want to test at the 0.05 level of significance that the mean price of luxury cars is greater than $80,000. A random sample of 50 cars has a mean price of $88,000. The population standard deviation is $15,000. What is the alternative hypothesis? A. The population mean is greater than or equal to $80,000. B. The population mean is less than $80,000. C. The population mean is not equal to $80,000. D. The population mean is greater than is $80,000. Correct answer: D The alternate hypothesis is the statement which will be accepted if the null hypothesis is proven wrong. Therefore, we make whatever we are trying to test as the alternate hypothesis - in this case that the mean price of luxury cars is greater than $80,000, and the null hypothesis as the opposite (the mean price of luxury cars is less than or equal to $80,000). This problem is a common example of how statisticians establish hypotheses by proving that the opposite (i.e. the null hypothesis) is false. 6. Suppose that Gene owns a perpetuity, issued by an insurance company that pays $1,250 at the end of each year. The insurance company now wishes to replace it with a decreasing perpetuity of $1,500 decreasing at 1% p.a. without any change in the payment dates. At what rate of interest (assuming a flat yield curve) would Gene be indifferent between the choices? A. 4%. B. 5%. C. 6%. D. 9%. Correct answer: B 1,250 / r = 1,500 / (r + 1%) or, 1,250 x (r + 1%) = 1,500 x r or, r = 12.5 / (1,500 - 1,250) = 5%. 7. Which of the following is considered to be the responsibility of the legal risk manager? I. Inadequate documentation o f OTC derivatives transactions. II. The enforceability of netting agreements in bankruptcy. III. Default on interest and principal payments. A. I only B. II only C. I and II only D. I, II, and III

Answer : D Legal risk management is concerned with adequate documentation, public filings, compliance with regulatory entities, and some borrower impositions. The legal manager is also involved in deciding if default has occurred and, if so, assisting with...

...Running head: FinancialManagement in Nonprofit Organizations
FinancialManagement in Nonprofit Organizations
Executive Summary
Successful management of a not-for-profit organization requires providing high-quality service, but at the same time, careful administration - to reduce expenses and automate processes are ongoing requirements. Each type of not-for-profit organization has unique management...

...Financial risk management is not a new area of corporate finance but it certainly is not the most glamorous or favorable area to be in and is gaining more attention in the current economic crisis. Risk management is a part of many different lines of work, but all have the same purpose; identifying risk is imperative to success so that you can also discover ways to mitigate or avoid the problem and make sounds decisions. “Financial risk...

...Financial services encompass a variety of businesses that deal with money management. These include many different kinds of organizations such as banks, investment companies, credit card companies, insurance companies and even government programs. Financial services can also refer to the services and products that money management organizations offer to the public.
Banks are one kind of financial services...

...1. What are the advantages and disadvantages of financial risk management?
Financial risk management is the practice of creating economic value in a firm by using financial instruments to manage exposure to risk. Similar to general risk management, financial risk management requires identifying its sources, measuring it, and plans to address them.
Financial risk...

...
Crisis management: framework incorporating quality issues
Introduction
The 2007-09 financial crisis was the most serious such event since the Great Depression. The
crisis manifested itself in credit losses, write-downs, liquidity shocks, deflated property values,
and a contraction of the real economy. The sharp contraction in U.S. gross domestic product in
2009 traced to the adverse effects of the crisis on household consumption and business
Investments....

...CONTENT
No | Title | Pages |
1.0 | Introduction of Financial Ratio | 2 - 3 |
2.0 | Calculation of the 10 Financial Ratio in NESTLE (Malaysia) Bhd | 4 - 6 |
3.0 | The Analysis of Financial situation in NESTLE | 7 |
4.0 | Conclusion | 8 |
5.0 | Bibliography | 9 - 10 |
6.0 | Appendix | 11 |
1.0 Financial Ratios and it importance in a corporation
Basically, financial ratios help and used to examine...

...What will your outlook towards maintenance of liquid assets to ensure that the firm has adequate cash in hand to meet its obligations at all time ?
In business, economics or investment, market liquidity is an asset's ability to be sold without causing a significant movement in the price and with minimum loss of value. Money, or cash, is the most liquid asset, and can be used immediately to perform economic actions like buying, selling, or paying debt, meeting immediate wants and needs....

...A.In finance, the financial system is the system that allows the transfer of money between savers (and investors) and borrowers.[1] A financial system can operate on a global, regional or firm specific level. Gurusamy, writing in Financial Services and Systems has described it as comprising "a set of complex and closely interconnected financial institutions, markets, instruments, services, practices, and transactions.
Functions...