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- Which of the following statements is true with regard to financial markets O a. They link the households which save funds and business firms which invest these funds: O b. They work as an intermediary between the savers and the investors by mobilising funds between them c. They allocate funds available for investment into their most productive investment opportunity d.All of the optionsSuppose Mr. Asib want to start a business in your local community. How much will be Mr. Asib's Start-up capital, second stage, and acquisition capital? How would you fund each capital amount? In which areas will mr. asib utilize this capital? Explain with justification.According to the M&M propositions WITH and WITHOUT taxes, should a financial manager spend time analysing a firm’s capital structure? What is the optimal capital structure with and without tax? Discuss.
- Joan McKay is a portfolio manager for a bank trust department. McKay meets with two clients, Kevin Murray and Lisa York, to review their investment objectives. Each client expresses an interest in changing his or her individual investment objectives. Both clients currently hold well-diversified portfolios of risky assets.a. Murray wants to increase the expected return of his portfolio. State what action McKay should take to achieve Murray’s objective. Justify your response in the context of the CML.b. York wants to reduce the risk exposure of her portfolio but does not want to engage in borrowing or lending activities to do so. State what action McKay should take to achieve York’s objective. Justify your response in the context of the SML.What is opportunity cost and why is it an important concept in the capital budgeting process? The opportunity cost concept applies to almost every financial decision we make as individuals. Can you give an example from your own experience? What is capital rationing from the perspective of capital budgeting? Give an example of a strength and a weakness of the accounting rate of return approach.Translating the aspirations and circumstances of diverse households into appropriate investment decisions is a daunting task. The task is equally difficult for institutions, most of which have many stakeholders and often are regulated by various authorities. The investment process is not easily reduced to a simple or mechanical algorithm. (a) Outline and discuss the ideal investment process. How should an investor, whether individual or institutional, systematically go about investing? Why is taking such an approach necessary? (b) Consider your parents or others in their generation. List and discuss what would be their objectives and constraints for their investment decisions. (c) Consider yourself to be in your 20s or 30s. List and discuss what investment objectives and constraints would fit your investment decision and Discuss the reasons and/or factors for the differences between your answers for (b) and (c).
- Required: (a) (i) Derive the various after tax costs of finance and the overall weighted average cost of capital for both Rosehip plc and Sage plc. (ii) Mr Tea has asked for your advice as he wishes to switch his investment from Rosehip plc to Sage plc but retain his investment profile. Carefully explain showing all calculations what actions Mr Tea would have to take in order to achieve this position. Fully explain your answer. Would you advise Mr Tea to go ahead with such a switch? Also, calculate Mr Tea’s income position in Rosehip plc and Sage plc both before and after the switch. (b) Explain how you would try to estimate the beta factor of a new project with different characteristics to current operations. Discuss the theoretical and practical problems you might encounter.Assume that Mr James wants to invest his savings in less risky financial instruments with minimum rate of return per annum. Therefore he invested his savings in some financial assets in which returns will be guarantee even if the company will be in losses also. The financial instruments purchased by Mr James is known as: O a. Preference shares b. Equity shares c. Partnership shares d. DebenturesA life insurance policy is a financial asset, with the premiums paid representing the investment’scost.a. How would you calculate the expected return on a 1-year life insurance policy?b. Suppose the owner of a life insurance policy has no other financial assets—the person’sonly other asset is “human capital,” or earnings capacity. What is the correlation coefficientbetween the return on the insurance policy and the return on the human capital?c. Life insurance companies must pay administrative costs and sales representatives’commissions; hence, the expected rate of return on insurance premiums is generallylow or even negative. Use portfolio concepts to explain why people buy life insurancein spite of low expected returns.
- Use the following to answer questions a. – f. a. What is the alpha for Fund B? b. Based on alpha, which fund displays superior performance? c. What is the Sharpe ratio for Fund B? d. Based on the Sharpe ratio, which fund displays superior performance? e. Suppose you are an investment counselor with a new client, Jonsey, and that Funds A and B are the only options available in Jonsey's company sponsored retirement account. Jonsey has no other investments. Which fund would you recommend, and why? f. What additional evidence would make you more confident in your recommendation, that is, more confident that the fund you recommend has the ability to perform in the future? (Hint: The answer has nothing to do with the Treynor Index.)Why do equity investors often use borrowed funds? Explain positive and negative financial leverage and the risks to the borrower of using borrowed funds.What is a real estate investment trust? Explain the difference between public and private REITs. How is performance measured for REITs? Choose three common investment ratios in real estate. Explain what the ratio measures and why an investor might consider the ratio. What is the difference between unlevered and levered cash flows? What discount rate must be applied when using unlevered cash flows versus levered cash flows? What is lease assignment? What is subletting? Explain at least one main difference between these methods.Assume that Mr James wants to invest his savings in less risky financial instruments with a minimum rate of return per annum . Therefore he invested his savings in some financial assets in which returns will be guarantee even if the company will be in losses also . The financial instruments purchased by Mr James is known as : a . Debentures b . Equity shares Oc . Preference shares d . Partnership shares