Financial Management
FINANCIAL MANAGEMENT FOR NON-FINANCE MANAGERS
Questions
Exercise 1: This exercise is intended to make sure that we are all familiar with terms used debt financing. (10 points) (10)
Fill the blanks by choosing the appropriate term from the following list: lease, funded, floating-rate, Eurobond, convertible, subordinated, call, sinking fund, prime rate, private placement, global bond, public issue, senior, unfunded, Eurodollar rate, warrant, debentures, term loan.
a. Debt maturing in more than 1 year is often called FUNDED debt.
b. An issue of bonds that is sold simultaneously in several countries is traditionally called a(n) GLOBAL BOND.
c. If a lender ranks behind the firm’s general creditors in the event of default, the loan is said to be SUBORDINATED.
d. In many cases, a firm is obliged to make regular contributions to a(n) SINKING FUND, which is then used to repurchase bonds.
e. Most bonds give the firm the right to repurchase or CALL the bonds at specified prices.
f. The benchmark interest rate that banks charge to their customers with good credit is generally termed the PRIME RATE.
g. The interest rate on bank loans is often tied to short-term interest rates. These loans are usually called FLOATING RATE loans.
h. Where there is a(n) PRIVATE PLACEMENT securities are sold directly to a small group of institutional investors. These securities cannot be resold to individual investors. In the case of a(n) PUBLIC ISSUE, debt can be freely bought and sold by individual investors.
i. A long-term rental agreement is called a(n) LEASE.
j. A(n) CONVERTIBLE bond can be exchanged for shares of the issuing corporation.
k. A(n) WARRANT gives its owner the right to buy shares in the issuing company at a predetermined.
Exercise 2: (18 points) (18)
Empirical evidence shows that stock market in the United States is efficient.
a. Explain the three forms of market efficiency (see chapter 5, pages 178 – 183).
b. How do you
Questions
Exercise 1: This exercise is intended to make sure that we are all familiar with terms used debt financing. (10 points) (10)
Fill the blanks by choosing the appropriate term from the following list: lease, funded, floating-rate, Eurobond, convertible, subordinated, call, sinking fund, prime rate, private placement, global bond, public issue, senior, unfunded, Eurodollar rate, warrant, debentures, term loan.
a. Debt maturing in more than 1 year is often called FUNDED debt.
b. An issue of bonds that is sold simultaneously in several countries is traditionally called a(n) GLOBAL BOND.
c. If a lender ranks behind the firm’s general creditors in the event of default, the loan is said to be SUBORDINATED.
d. In many cases, a firm is obliged to make regular contributions to a(n) SINKING FUND, which is then used to repurchase bonds.
e. Most bonds give the firm the right to repurchase or CALL the bonds at specified prices.
f. The benchmark interest rate that banks charge to their customers with good credit is generally termed the PRIME RATE.
g. The interest rate on bank loans is often tied to short-term interest rates. These loans are usually called FLOATING RATE loans.
h. Where there is a(n) PRIVATE PLACEMENT securities are sold directly to a small group of institutional investors. These securities cannot be resold to individual investors. In the case of a(n) PUBLIC ISSUE, debt can be freely bought and sold by individual investors.
i. A long-term rental agreement is called a(n) LEASE.
j. A(n) CONVERTIBLE bond can be exchanged for shares of the issuing corporation.
k. A(n) WARRANT gives its owner the right to buy shares in the issuing company at a predetermined.
Exercise 2: (18 points) (18)
Empirical evidence shows that stock market in the United States is efficient.
a. Explain the three forms of market efficiency (see chapter 5, pages 178 – 183).
b. How do you