Remembering: List down four considerations before investment decision making. "_________" The higher rate the greater the return. "_________" An investment is unideal if the cost of trading is high. "_________" There are cost savings in government bonds. "_________" Certificate of deposits cannot withdraw anytime
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Remembering: List down four considerations before investment decision making.
"_________" The higher rate the greater the return.
"_________" An investment is unideal if the cost of trading is high.
"_________" There are cost savings in government bonds.
"_________" Certificate of deposits cannot withdraw anytime.
Step by step
Solved in 3 steps
- Which TWO of the following statements are correct?i)Tax allowable depreciation is a relevant cash flow when evaluating borrowing to buy compared to leasing as a financing choiceii) Asset replacement decisions require relevant cash flows to be discounted by the after-tax cost of debtiii) If capital is rationed, divisible investment projects can be ranked by the profitability index when determining the optimum investment scheduleiv) Government restrictions on bank lending are associated with hard capital rationing a. ii & iii b. i & ii c. i & iii d. iii & ivDecide whether the following statement makes sense (or is clearly true) or does not make sense (or is clearly false). Explain. I'm already retired, so I need low-risk investments. That's why I put most of my money in U.S. Treasury bills, notes, and bonds.Choose the correct answer below. A.This makes sense because the safest investments are federally insured bank accounts and U.S. Treasury bills; there's virtually no risk of losing the principal invested. B.This does not make sense because U.S. Treasury bills, notes, and bonds are high-risk investments that offer prospects of higher returns, along with the possibility of losing the principal. C.This does not make sense because U.S Treasury bills are different than notes and bonds. The U.S Treasury bills are low-risk while the notes and bonds are high-risk. D.This makes sense because low-risk is a smart choice for a retired person with limited monthly income.Please answer with reason for all why the option is correct and why the other options are incorrect Which of the following practice is most likely to undermine inter-period equity? Delay the recognition of expenses incurred to fund a project until a future period in which payment is made. Issuing bonds to finance construction of a new school. Paying salaries out of the current year budget. Recognizing gains or losses on marketable securities as prices increase or decrease.
- Explain why the return associated with an investment includes both the income paid by the issuer and the change in value associated with the investment. Suppose interest rates on residential mortgages of equal risk were 8 percent in California and 10 percent in New York. a.Could this differential persist? What forces might tend to equalize rates? b.Would differentials in borrowing costs for businesses of equal risk located in California and New York be more or less likely to exist than differentials in residential mortgage rates? Would differentials in the cost of money for California and New York firms be more likely to exist if the firms being compared were very large or very small? c. What are the implications of the trend for financial institutions to become large mega banking organizations and to engage in nationwide branching? Which fluctuate more, short-term or long-term interest rates? Why? Suppose a new process was developed that could be used to make oil out of seawater. The…All else being equal, if a central bank buys government bonds from the market it would: a. mean savings in the economy are likely to increase. b. mean the supply of loanable funds would move to the left. c. increase the money supply. d. increase interest rates.The company's bank won't lend it any more money than it already has, and investment bankers have said that debentures are out of the question. The treasurer has asked you to do some research and suggest a few ways in which bonds might be made attractive enough to allow the company to borrow. What does providing a restrictive indenture limiting the risk in future undertakings do? How does it make the bonds more attractive? Explain in great detail.
- 1. Which of the following is not a way in which banks lend short-term unsecured loans? Choices: By sending the amount earned from trust and investment products offered by the bank Through a guaranteed credit line that has a commitment fee for any unused amount for the year Through credits cards lines with a certain credit limit By lending a single date maturity loan to a debtor 2. The following are methods of acquiring funds through long-term financing, except Choices: Issuing bonds with semi-annual coupon payment at a discounted price Selling equity securities at an amount above the par value indicated in the stock certificate Issuing a note that indicates a promise to pay the indicated supplier in a future date Selling equity securities with a characteristic of both debt and equity security 3. Which is false about long-term sources of a firm's capital? Choices: Preferred shares are securities whose intrinsic value is based on prospective earnings All types of…All else being equal, if a central bank sells government bonds from the market it would: a. decrease the money supply. b. decrease interest rates. c. mean the supply of loanable funds would move to the right. d. most likely decrease savings in the economy.Robert Black and Carol Alvarez are vice presidents of Western Money Management andcodirectors of the company’s pension fund management division. A major new client, the California League ofCities, has requested that Western present an investment seminar to the mayors of the represented cities. Blackand Alvarez, who will make the presentation, have asked you to help them by answering the following questions:a. What are a bond’s key features?b. What are call provisions and sinking fund provisions? Do these provisions make bonds more or less risky?c. How is the value of any asset whose value is based on expected future cash flows determined?d. How is a bond’s value determined? What is the value of a 10-year, $1,000 par value bond with a 10%annual coupon if its required return is 10%?e. 1. What is the value of a 13% coupon bond that is otherwise identical to the bond described in part d?Would we now have a discount or a premium bond?2. What is the value of a 7% coupon bond with these…
- Why do companies often prefer debt financing to other forms of financing for capitalinvestments?a. Actually, they don't prefer debt financing. They usually try to use retainedearnings for capital investments.b. Because bond holders are happy to just break even on their bonds.c. Because the MARR all but guarantees the projects will return yields greater thanthe interest on the loans.d. Because debt interest is tax deductible, reducing significantly the actual cost ofborrowing money for projects.Assume that as an investment manager at Oman investment fund; you hold a large bond portfolio of Omani government bonds (long term) and T-bills (short-terms). The interest rates are currently falling due to Covid-19. a. How your bond portfolio would be affected by falling interest rates? b. How your t-bills portfolio would be affected by falling interest rates? c. Which portfolio is more sensitiveBOND VALUATION Lee Teng and Hu Feng are vice presidents of Oriental Asset Management and codirectors of the company’s pension fun management division. A major new client, the Shandong Network of Cities, has requested that Oriental Asset Management present an investment seminar to the mayors of the represented cities. Lee and Hu, who will make the presentation, have asked you to help them by answering the following questions. What are the bond’s key features? What are call provisions or sinking fund provisions? Do these provisions make bonds more or less risky? How is the value of any asset whose value is based on expected future cash flows determined? How is a bond’s value determined? What is the value of a 10-years, $1,000 par value bond with a 10% annual coupon if its required return is 10%? What is the value of a 13% coupon bond that is otherwise identical to the bond described in Question 4? Would we now have a discount or a premium bond? What is the value of 7% coupon bond with…