1. | Question : | (TCO C) Blease Inc. has a capital budget of $625‚000‚ and it wants to maintain a target capital structure of 60 percent debt and 40 percent equity. The company forecasts a net income of $475‚000. If it follows the residual dividend policy‚ what is its forecasted dividend payout ratio? (a) 40.61% (b) 42.75% (c) 45.00% (d) 47.37% (e) 49.74% | | | Student Answer: | | (d) 47.37 Equity required (Residual income) = $625‚000*40% = $250‚000 Dividend paid = $475‚000 - $250
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CH10 The government debt totaled 27% of total credit market debt although this number has risen since that time.Mortgages comprised 28%‚ Corporate and Foreign Bonds 22% and Municipal Bonds 5% of total credit market debt in the third quarter of 2008. The issuing company may choose to call the bond and require the bondholder to turn in the bond in exchange for receiving the bond’s call price. A callable bond gives the issuing company the right to call in the bond by paying the bondholder the call price
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Chapter 3 3. Discuss why international diversification reduces portfolio risk. Specifically‚ why would you expect low correlation in the rates of return for domestic and foreign securities? International diversification reduces portfolio risk because of the low correlation of returns among the securities from different countries. This is due to differing international trade patterns‚ economic growth‚ fiscal policies‚ and monetary policies among countries. 7. Some investors believe that
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EXC3613 Risk Management with derivatives Geir Høidal Bjønnes geir.bjonnes@bi.no 1 Introduction • Learning objectives: 1. 2. 3. 4. What is a derivative? What is the role of Derivatives and Derivatives Markets Firms’ risk exposures Hedging price risk with derivatives • McDonald: Chapter 1 2 Example • Consider a farmer that grows wheat and is expecting to yield 10‚000 bushels of crop in 3 months. He is afraid that the price of wheat might drop at the period
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Transaction Costs of Currency Futures Currency Call Options Factors Affecting Call Option Premiums How Firms Use Currency Call Options Speculating with Currency Call Options Currency Put Options Factors Affecting Currency Put Option Premiums Hedging with Currency Put Options Speculating with Currency Put Options Contingency Graphs for Currency Options Conditional Currency Options European Currency Options How the Use of Currency Futures and Options Contracts Affect an MNC’s Value Chapter Theme
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Bibliography: Books: David Cobham (1992)‚ Markets & Dealers Frank Fabozzi (1986)‚ Advances in Futures and options research‚ DC Gardner (1996)‚ Introduction to derivatives‚ workbook 4‚ level 1 Paul Wilmott (1998)‚ Derivatives‚ The Theory and Practice of Financial Engineering Articles: Financial WMD? (derivatives and risk) The Economist (US) Jan. 24‚ 2004 Are
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Equity – ‘Ownership in a firm’ – A stock is a ‘claim to funds after all debts have been paid’ Prof. Lasse H. Pedersen Important Financial Assets Derivatives – Definition: ‘securities whose payoff depends on values of other assets’ – Examples Options Futures Swaps Investment Companies – Mutual Funds Prof. Lasse H. Pedersen Treasury Bonds Types of Treasury bonds – Treasury Bills (less than 1 year maturity) – Treasury Notes (1-10 year maturity) – Treasury Bonds (10-30 year maturity)
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PRACTICE_FINAL EXAM PORTFOLIO MANAGEMENT Winter 2013 CHAPTER 19—BOND PORTFOLIO MANAGEMENT STRATEGIES MULTIPLE CHOICE 1. Which of the following is a passive bond portfolio strategy? a. Indexing b. Buy-and-Hold c. Classical immunization d. Choices a and b e. None of the above ANS: D PTS: 1 OBJ: Multiple Choice 3. Which of the following is a matched funding technique? a. Classical immunization b. Contingent immunization c. Bond swaps d. Valuation analysis e. Interest rate anticipation ANS: A PTS:
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CONCEPT QUESTIONS - CHAPTER 14 14.1 List the three ways financing decisions can create value. 1. Fool investors 2. Reduce costs or increase subsidies 3. Create a new security 14.2 How do you define an efficient market? It is a market where current prices reflect all available information. Name the three foundations of market efficiency? Rationality‚ independent deviations from rationality and arbitrage 14.3 How would you describe the three forms of the efficient-market hypotheses
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Case Delta Beverage Group‚ Inc. History The Delta Beverage Group is a bottling and canning company from the United States. Delta had some very strong brand names‚ like Pepsi and Mountain Dew‚ included in their franchises. Around 1988‚ a price war occurred and Delta suffered from compressed margins. About a year later situation became critical and a new management team from was hired. The new management stopped the fall in prices‚ the decline in market share and increased margins by changing
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